Can an individual contribute to a Health Savings Account (HSA) after age 65?
It is possible to remain eligible and make contributions to an HSA after age 65, however, the details of accomplishing this can be tricky. The key is to understand when making contributions after age 65 works and when it does not.
The HSA contribution rules say that if an individual has any other disqualifying coverage (meaning any coverage other than or in addition to a qualifying HDHP plan), they cannot make contributions to an HSA.
Medicare is Disqualifying Coverage
Importantly, Medicare is considered such disqualifying coverage. Medicare has multiple parts which include Part A, Part B, and Part D for traditional Medicare and Part C (Medicare Advantage or Medicare HMO plans, Medicare Supplement/Medigap plans). Being covered by any part of Medicare is considered disqualifying coverage and thus makes individuals ineligible to contribute to an HSA.
Eligible vs. Entitled vs. Enrolled
Medicare terminology can be confusing but understanding the definition and application of these three terms is critically important.
- Eligible means eligible to sign up for Medicare benefits but it does NOT presume any actual enrollment.
- Entitled means actually enrolled in Medicare coverage such that benefits would be payable (under any part). This is the term that is used by the Medicare program.
- Enrolled means the same as entitled in Medicare-speak.
Social Security Payments and Medicare Part A are Linked
Enrollment in Medicare Part A is oftentimes automatic, and thus can create an unintended consequence of disqualifying future HSA contributions. The Social Security Administration automatically enrolls individuals in Medicare Part A at age 65 if Social Security benefits payments commence. There are five potential scenarios to consider:
- Social Security Prior to Age 65: When Social Security benefit payments began prior to age 65, enrollment in Medicare Part A is automatic at age 65. In this case, individuals lose the ability to make HSA contributions.
- Social Security at Age 65: When Social Security benefits begin concurrently with turning age 65, enrollment in Medicare Part A is automatic concurrently at age 65. In this case, individuals lose the ability to make HSA contributions.
- Social Security Deferred: When Social Security benefit payments are deferred, enrollment in Medicare Part A is also deferred until the beneficiary activates Medicare Part A (and other parts of Medicare). In this case, individuals retain the ability to make HSA contributions.
- Elective Opt Out from Social Security and Medicare: When Social Security benefits are activated but an individual does NOT want current coverage under Medicare Part A, the individual may complete a form to actively disenroll themselves from Medicare Part A. In the absence of completing the SS form, HSA contributions would be disqualified, even if an individual did not “want” to have or intend to use Medicare Part A benefits. Notably, it is not possible to retain Social Security benefits and electively opt out of Medicare Part A. If an individual wants to opt out of Medicare Part A, they must opt out of both. When an elective opt out form is completed, individuals preserve the ability to make HSA contributions.
- Employed at Small Employer: Individuals that work for smaller employers (fewer than 20 employees) have Medicare as their primary insurance at age 65, therefore it would not work to “opt out” of Medicare in favor of retaining HSA eligibility. In this case, individuals do not have the ability to make HSA contributions.
Medicare Part B and Part D Require Action
Enrollment in Medicare Part B and Part D require participant action and there are premiums that must be paid pursuant to enrollment in these parts. These coverages still disqualify HSA contributions, but because they require specific action to enroll, they are less often the subject of inadvertent coverage entitlement.
Stopping Medicare to Reclaim HSA Eligibility
Medicare Part A coverage can be declined (if coverage was activated either previously or unintentionally) by submitting a request form to the Social Security Administration.
If Social Security benefit payments have not commenced, this action will reestablish eligibility for making HSA contributions proactively. If Social Security benefit payments have commenced, a Social Security/Medicare Part A opt out requires repayment to the government of all Social Security payments received and all monies received as reimbursement for Medicare claims. Part A benefits may be activated after group health benefits are terminated in the future.
Pro-Rata Contribution for Year Individual Turns 65
HSA contributions are pro-rated in the year an individual turns age 65. The proration is based on the months of actual eligibility, after turning age 65 and enrolling in disqualifying coverage (in this case, Medicare). Beginning with the first month of Medicare enrollment, the contribution limit is zero. This rule also applies to periods of retroactive Medicare coverage.
Example: Bonnie was covered by a self-only HDHP and eligible for an HSA in 2020. She turned 65 on July 2, 2020 and enrolled in Medicare, effective July 1, 2020. Bonnie lost eligibility for her HSA as of July 1, 2020 and thus was only eligible for six (6) months of the year. Her federal HSA limit was $4,550 ($3,550 individual HSA limit plus a $1,000 catch-up). Accordingly, Bonnie’s maximum contribution is 6/12 X $4,550 = $2,275. Bonnie has until April 15, 2021 to make this contribution.
If a delay occurred in applying for Medicare and an enrollment is later backdated, any HSA contributions made during the period of retroactive coverage are considered excess contributions.
Anticipating Post Age 65 Enrollment in Medicare Part A
Individuals who have deferred enrolling in Medicare Part A for HSA eligibility purposes must plan ahead for the reality that, upon activation, the effective date of Part A coverage will be up to six months retroactive (no earlier than the first month of Medicare eligibility or the individual’s age 65). This means that HSA contributions must be stopped six months prior to Medicare Part A enrollment since the retroactive nature of Part A coverage will disqualify HSA contributions during that six-month period.
Withdrawing Excess Contributions
To read more about the excise tax penalty for excess HSA contributions and corrective action, please see the Excess HSA Contributions article.