Can You Contribute to an HSA While on Medicare?

Health Savings Accounts (HSAs) offer tax advantages for medical expenses, but Medicare enrollment changes eligibility rules, often leading to unexpected tax issues. Many are unaware that enrolling in Medicare disqualifies them from making HSA contributions. Understanding these rules helps avoid penalties and ensures better financial planning.

Basic Medicare Enrollment Impact

Once enrolled in Medicare, you can no longer contribute to an HSA. IRS rules require HSA participants to have a high-deductible health plan (HDHP) with no other health coverage, and Medicare is considered additional coverage. This applies even if you delay Medicare Part B or Part D but are enrolled in Part A.

Automatic enrollment in Part A at age 65, often tied to Social Security benefits, can unintentionally end HSA eligibility. Additionally, Medicare Part A coverage is retroactive for up to six months for those enrolling after 65, potentially leading to excess contributions that require correction.

Penalties for Ineligible Contributions

Contributing to an HSA after Medicare enrollment results in excess contributions, which incur a 6% excise tax for each year they remain in the account. This penalty continues until the excess funds are withdrawn.

To avoid ongoing penalties, excess contributions and any earnings must be removed before the tax filing deadline, including extensions. If not corrected, the excise tax applies annually, and the earnings become taxable income. Withdrawals must be properly documented using Form 5329, which reports additional taxes on HSAs, and any withdrawn earnings must be included as income on Form 1040.

Employer-Sponsored Coverage Implications

Employees with workplace HDHPs often contribute to HSAs, but Medicare enrollment ends this eligibility. Even if you remain on an employer’s HDHP, HSA contributions must stop once enrolled in Medicare.

Employer contributions also cease upon Medicare enrollment. If an employer continues making deposits, they are considered excess contributions and subject to penalties. Employees should notify HR to prevent this issue.

For those working at companies with 20 or more employees, employer-sponsored health plans remain the primary coverage, allowing them to delay Medicare enrollment. However, at smaller companies with fewer than 20 employees, Medicare becomes primary, making it harder to maintain HSA eligibility.

Delaying Medicare Enrollment

Those working past 65 at a company with 20 or more employees can defer Medicare enrollment without penalties, preserving their ability to contribute to an HSA. However, enrolling in Social Security automatically triggers Medicare Part A enrollment, ending HSA eligibility. Those intending to delay Medicare should also postpone claiming Social Security.

Employees delaying Medicare should inform HR to ensure their coverage remains intact and avoid administrative errors that could result in unintended Medicare enrollment.

Spousal Contribution Options

Medicare enrollment does not necessarily mean the end of HSA contributions for a household. While an individual on Medicare can no longer contribute to their own HSA, their spouse may still be eligible if they have an HDHP and are not enrolled in Medicare.

If both spouses are covered under the same HDHP but only one remains eligible to contribute, they can use the family HSA contribution limit. For 2024, this limit is $8,300, compared to $4,150 for an individual. If the contributing spouse is 55 or older, they can also make a $1,000 catch-up contribution. Proper planning ensures continued HSA benefits while remaining compliant with IRS rules.

Tax Reporting Adjustments

Once enrolled in Medicare, tax filings must reflect the change in HSA eligibility. Contributions made after enrollment must be corrected, and even those who stop contributing on time may need to adjust their tax reporting.

HSA contributions are typically deducted pre-tax through payroll or claimed as an adjustment on Form 8889. Any excess contributions must be removed and reported to avoid penalties. If contributions were mistakenly made after Medicare enrollment, the excess funds and any earnings must be withdrawn before the tax filing deadline. The withdrawn amount should be reported on Form 1099-SA, and Form 5329 must be completed to calculate any applicable excise taxes.

Failing to document these adjustments properly can lead to IRS penalties, interest charges, and audits. Careful tax planning ensures compliance and prevents unnecessary financial burdens.