How to Use Your HSA After You Turn 65

Do you have a Health Savings Account (HSA)? If so, you should note that the rules regarding HSAs change when you turn 65. Healthcare costs in retirement are rising, and an HSA can be a good way to cover future medical expenses, both for you and your spouse. However, once you sign up for Medicare, you can no longer contribute to an HSA. So, here is how you can make the most of what you’ve saved in your account.

The benefits of an HSA are that contributions are not taxed, funds grow tax deferred, and can be withdrawn tax free for qualified medical expenses. You can still contribute to your HSA for 2018 until April 15th of this year if you have not signed up for Medicare yet. Before age 65, you can’t use funds from an HSA to pay for non-medical expenses without incurring a 20% penalty. But, when you turn 65, you only have to pay taxes on withdrawals for non-medical expenses, and do not have to pay taxes on withdrawals for qualifying medical expenses. Qualifying medical expenses include Medicare Part B and Medicare Advantage plans, prescription drugs, a portion of long-term care insurance premiums, dental and vision care.1

Unlike a flexible spending account, the use-it-or-lose-it rule does not apply to HSAs. One strategy you can use is to avoid withdrawing from your HSA before you turn 65, by paying in cash for medical expenses. If you keep the receipts, you can withdraw from your HSA to reimburse yourself years later. This way, the funds have more time to grow tax free, and you can delay withdrawing until after you are 65 and the funds used for qualifying medical expenses are no longer subject to tax.2

If you are still working past the age of 65 and delay signing up for Medicare, you can continue to contribute to an HSA. People who have an employer match may choose to do this. You must also delay Social Security benefits in order to delay Medicare and must work for an employer with more than 20 employees.3

How to use an HSA after you turn 65 is one of the rules of retirement to consider. If you’re like most Americans, you will start receiving Medicare benefits when you are 65, and will no longer be able to contribute to an HSA.4 However, this doesn’t mean that your HSA can’t be a useful tool in retirement if you know how to make the most of what you’ve saved in your account.

Knowing ahead of time how to use your HSA when you turn 65 can help you create a retirement plan that take rising healthcare costs into account. Here at Moore’s Wealth Management, we can help you prepare for retirement by arming you with knowledge and a comprehensive plan based on your individual needs. Click here to schedule your no cost, no obligation review today.

Advisory services offered through Moore’s Wealth Advisory, A Member of Advisory Services Network, LLC.  Insurance products and services offered through Moore’s Wealth Management.  Advisory Services Network, LLC and Moore’s Wealth Management are not affiliated.

[1] Fralick, Kailey. “Is an HSA a Good Place for My Retirement Savings?” The Motley Fool, The Motley Fool, 17 Feb. 2019, www.fool.com/retirement/2019/02/17/is-an-hsa-a-good-place-for-my-retirement-savings.aspx.

[2] Lankford, Kimberly. “Making the Most of a Health Savings Account Once You Turn Age 65.” Www.kiplinger.com, Kiplingers Personal Finance, 8 Mar. 2019, www.kiplinger.com/article/retirement/T037-C001-S003-making-the-most-of-a-health-savings-account-age-65.html.

[3] Hartman, Rachel. “6 Myths About HSAs for Retirement.” U.S. News & World Report, U.S. News & World Report, 2018, money.usnews.com/money/retirement/aging/articles/2018-10-17/6-myths-about-hsas-for-retirement.

[4] “Publication 969 (2018), Health Savings Accounts and Other Tax-Favored Health Plans.” Internal Revenue Service, www.irs.gov/publications/p969.