Medicare and Health Savings Accounts (HSA)
As you approach or surpass age 65, it’s important to understand how enrolling in Medicare can impact your health savings account (HSA).
Contrary to popular belief, enrolling in Medicare Part A when you first become eligible is not required to avoid a late enrollment penalty, especially if you’re covered by an eligible group medical plan (such as IU’s Anthem PPO HDHP or PPO $500 Deductible Plan). In this case, you can delay Medicare enrollment without penalty until you retire.
Why this Matters
It’s important to understand this because while being eligible for Medicare has no impact on your HSA eligibility, enrolling in Medicare does. Once you enroll in Medicare, you are no longer eligible to make or receive tax-free contributions to an HSA, and any ineligible contributions could be subject to a 6% excise tax. To avoid this tax, you must remove these “excess” contributions from your account in the same tax year they’re made and report them as taxable income on your annual return.
Review the answers to common questions below to learn how to remain eligible for the HSA past age 65, how to stop contributions if you choose to do so, and how to avoid tax penalties on any excess contributions. For more detailed information visit the HSA Frequently Asked Questions.
Resources
Forms
Frequently Asked Questions
Common Questions and Answers
Before Enrolling in Medicare
Do I have to enroll in Medicare at age 65?
No. As long as you remain covered by a group medical plan (such as IU’s Anthem PPO HDHP or PPO $500 Deductible Plan), you can delay Medicare enrollment without penalty until you retire. When your employment ends, you’re entitled to an 8-month special enrollment period to sign up for Medicare.
Do I face a penalty if I don’t enroll in Medicare age 65?
As long as you remain covered by an eligible group medical plan (including IU’s Anthem PPO HDHP or PPO $500 Deductible Plan) you can delay Medicare enrollment without penalty until you retire.
How do I remain eligible for the HSA past age 65?
To remain eligible for the HSA past age 65 you must not enroll in Medicare or apply for Social Security benefits. As long as you continue working and remain covered by an IU-sponsored group medical plan, you can delay Medicare enrollment without penalty until you retire.
It’s important to note that when you apply for Social Security benefits, you are automatically enrolled in Medicare Part A and do not have the option to dis-enroll.
I want to avoid the excess contribution process. How and when do I stop my HSA contributions before I enroll in Medicare?
To stop your HSA contributions at any time, submit the HSA Enrollment / Change Form and submit it to IU Human Resources.
You should stop your HSA contributions prior to the date your Medicare coverage begins. This date could differ depending on your age and when you enroll. Coverage always starts on the first day of the month, and in some cases, is applied retroactively.
| If You: | Your Medicare Part A Coverage Begins: |
|---|---|
| Enroll in Medicare during your Initial Enrollment Period (7-month period that begins 3 months prior to your 65th birthday) | The month you turn 65 If your birthday is on the first of the month, coverage starts the month before you turn 65. |
| Enroll in Medicare during your Special Enrollment Period (8-month period that begins when you lose your group medical coverage) | Retroactively six months prior to the date you applied for Medicare, or your 65th birthday (whichever is closest)
|
| Apply for Social Security Benefits (age 65 and older) When you apply for Social Security benefits, you are automatically enrolled in Medicare Part A, and do not have the option to dis-enroll. |
Retroactively six months prior to the date you applied for Social Security, or your 65th birthday (whichever is closest) |
Depending on when you stop your HSA contributions, it’s possible that you may still have excess contributions in the year that you enroll in Medicare. If your Medicare coverage is applied retroactively, this means you will also be retroactively ineligible for the HSA, and any HSA contributions made when ineligible (yours or the university’s) may be subject to a 6% excise tax. You can avoid this excise tax by removing the ineligible (“excess”) contributions in the same tax year they are made, then reporting them as taxable income on your annual return. Learn more about Excess Contributions.
If I apply for Social Security benefits, when will I become ineligible for the HSA?
When you apply for Social Security benefits, you are automatically enrolled in Medicare Part A, and do not have the option to dis-enroll. Your Medicare Part A coverage begins retroactively six months prior to the date you applied for Social Security benefits, or your 65th birthday (whichever is closest).
You will be ineligible for tax-free HSA contributions as of the date your Medicare Part A coverage begins and should stop your HSA contributions prior to that date. When losing HSA eligibility mid-year, the IRS requires that you prorate your annual HSA contribution maximum to reflect only the months you were eligible. To calculate your prorated maximum, you can follow the Instructions for IRS Form 8889, or speak with a tax advisor.
Any contributions made to your HSA (yours and the university’s) above your prorated HSA contribution maximum are considered ineligible and may be subject to a 6% excise tax. You can avoid this excise tax by removing the ineligible (“excess”) contributions in the same tax year they are made, then reporting them as taxable income on your annual tax return (unless made by you on an after-tax basis). Learn more about Excess Contributions.
Please note, your spouse’s enrollment in Medicare or Social Security has no effect on your HSA.
If my spouse is enrolled in Medicare or Social Security, but I am not, can I contribute to an HSA?
Yes. Your spouse’s enrollment in Medicare or Social Security has no effect on your HSA.
After Enrolling in Medicare
I already enrolled in Medicare. Can I dis-enroll and reclaim HSA eligibility?
Possibly. You can contact the Social Security Administration and ask to dis-enroll from Medicare, which would make you once again eligible for the HSA.
If you have already applied for or begun receiving Social Security benefits, you can only opt out of Medicare Part A if you pay the government back all the money you received from Social Security payments, plus any money Medicare spent on your medical claims.
How do I stop my HSA contributions?
To stop your HSA contributions at any time, complete the HSA Enrollment / Change Form and submit it to IU Human Resources.
How much can I contribute to my HSA in the year that I enroll in Medicare?
When you enroll in Medicare mid-year, the IRS requires that you prorate your annual HSA contribution maximum to reflect only the months you were eligible.
To calculate your prorated contribution maximum:
- Add the IRS maximum ($4,150 or $8,300 for 2024) plus the age 55+ catch-up ($1,000)
- Divide by 12 (months)
- Multiply by the number of months that you were eligible (not enrolled in Medicare as of the first of the month).
How do I calculate my prorated contribution maximum?
HSA contribution limits are based on the tax year (January – December) and your coverage status on the first day of each month.
To calculate your prorated contribution maximum:
- Add the IRS maximum ($4,150 or $8,300 for 2024) plus the age 55+ catch-up ($1,000)
- Divide by 12 (months)
- Multiply by the number of months that you were eligible (not enrolled in Medicare as of the first of the month).
For example, let’s assume your Medicare coverage was effective April 1. This means you are only eligible for tax-free HSA contributions for 3 months. Your prorated contribution limit would be: ($4,150 + 1,000) ÷ (12) × (3) = $1,287.50.
Additional details about calculating your prorated contribution maximums can be found on the Instructions for IRS Form 8889 or by speaking to a tax advisor.
What if I accidentally contribute to my HSA when I am ineligible?
If you accidently contribute to your HSA while you’re enrolled in Medicare, or for any other reason that would make you ineligible, those contributions are potentially subject to a 6% excise tax. To avoid this, you can withdraw any “excess” contributions by the end of the tax year, and report them as taxable income. Learn more about excess contributions and how to remove them.
What if I contribute more than the IRS contribution maximum to my HSA?
If you contribute more than the IRS contribution maximum to your HSA, those “excess” contributions are potentially subject to a 6% excise tax. To avoid this, you can withdraw any excess contributions by the end of the tax year, and report them as taxable income. Learn more about excess contributions and how to remove them.
How do I remove excess contributions from my HSA?
If your HSA contains excess or ineligible contributions you will generally owe the IRS a 6% excise tax for each year that the excess contribution remains in your account. To avoid this excise tax you can:
- Complete an HSA Distribution Request Form and return it to WEX by December 31. This will trigger the withdrawal of any excess contributions from your account.
- You will then need to claim the distributed excess contributions as taxable income on your annual return. You’ll pay income taxes on these funds, but not the 6% excise tax.
Questions on the HSA distribution request process should be directed to WEX at or 800-284-8412.
What happens to my HSA after I stop contributions?
Any eligible funds in your account will continue to roll over each year until you use them for qualified health expenses. This includes new expenses and expenses incurred all the way back to the date you opened the account.
Can I continue to use my HSA funds for healthcare expenses after I enroll in Medicare?
Yes! If you have a balance in your account by the time you enroll in Medicare, you may continue to make withdrawals on your account to pay for qualified medical expenses. The money you take out will not be taxed as long as you are using it for approved healthcare expenses, such as deductibles, premiums, copays and coinsurance. This includes:
- Medicare Part B and D premiums
- Medicare Part C premiums
- IU Blue Retiree premiums
- Medicare deductibles
If you are age 65 or older, you also have the option to withdraw your HSA funds and use them for non-healthcare expenses. You’ll pay income tax on those withdrawals, but no penalties.
Can I remain enrolled on my high deductible health plan (HDHP) if I’m no longer HSA-eligible?
Yes. You can remain enrolled in the same HDHP and waive the HSA.
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