Chances are high that you have an employee who may be nearing retirement.   With retirement comes many important decisions. Once of those decisions is whether to enroll in Medicare. We’ve been asked over the years, many questions about Medicare and what an employee can do with their Health Savings Account (HSA) funds as they near retirement.

First, a quick overview on HSAs. If you are enrolled in a high deductible health plan (HDHP), you are eligible to open and contribute to an HSA. Your HSA contributions are not taxed, and money taken out is also tax-free as long as funds are used to pay for qualified medical expenses. Who determines whether medical expenses are qualified? The IRS.

There are special rules on how your HSA and Medicare work together. Here are five things you probably didn’t know about HSAs and Retirement:

  1. You may withdraw funds from your HSA at any time, regardless of whether you are eligible to contribute to your HSA.
  2. HSA funds can be used to pay Medicare Parts A, B, and D premiums.
  3. HSA funds cannot be used to pay for a Medicare Supplement (Medigap) policy.
  4. Reaching Age 65 enables you to use your funds for non-qualified medical expenses, with no penalties. However, note that these funds will be taxed as ordinary income.
  5. You cannot contribute to an HSA once you enroll in Medicare. The only way to continue contributing to an HSA after age 65 is to be enrolled in a high deductible health plan while delaying enrollment in Medicare.

Transitioning to retirement and to Medicare can be daunting. You can always put your mind at ease by contacting our Medicare and HSA expert, Lucia Fan.