Health Savings Accounts (HSAs) are one of the most powerful tools available for saving money on medical expenses. They offer a triple tax advantage:
You can make pre-tax contributions, which lowers your taxable income.
The money grows tax-free while it sits in the account.
Withdrawals for medical expenses are tax-free too.
But there’s a catch: once you turn 65 and enroll in Medicare, you usually can't contribute to an HSA anymore. For most people, that's the end of the line for new HSA contributions.
However, there’s a way to continue contributing even after 65, and in some cases, all the way up until you’re nearly 70! Let’s dive into how you can do this—and why it could make a huge difference in your savings.
1. Stay on a High Deductible Health Plan (HDHP)
If you or your spouse are still working and are covered by a large employer (20 or more employees) that offers a High Deductible Health Plan (HDHP), you can continue making contributions to your HSA.
For 2024, the employer’s HDHP must meet specific rules:
The deductible must be at least $1,600 for an individual or $3,200 for a family.
Out-of-pocket maximums can’t exceed $8,050 for individuals or $16,100 for families.
This option is ideal for those who are still employed or married to someone working for a large company. However, if your employer has fewer than 20 employees, Medicare becomes your primary health insurance, which prevents you from contributing to an HSA.
Example 1:Sam works for a company with 25 employees and has a qualifying HDHP. Even though he turns 65 this year, Sam doesn’t sign up for Medicare, so he can continue contributing to his HSA. In 2024, Sam will put in the full contribution limit of $9,300, which includes a $1,000 “catch-up” contribution allowed for people over 55. Sam plans to keep contributing to his HSA until he stops working at age 68.
2. Delay Medicare Enrollment
Many people think they have to sign up for Medicare as soon as they turn 65, but that’s not true. If you’re still covered under an employer’s HDHP, you can delay enrolling in Medicare.
By doing so, you can keep making HSA contributions until you leave the workforce or lose your employer health insurance.
Important Tip: If you delay Medicare, you won’t face any penalties as long as you sign up within eight months after you stop working or lose your coverage.
Example 2:Barbara turned 65 this year but didn’t sign up for Medicare because she’s covered by her husband’s large employer’s HDHP. Barbara continues contributing to her HSA, adding $8,300 in 2024. Two years later, her husband retires, and she signs up for Medicare at age 67. By delaying her Medicare enrollment, Barbara was able to add an extra $16,600 to her HSA over two years.
3. Be Careful with Social Security
Another thing to watch out for: once you start collecting Social Security benefits, you’re automatically enrolled in Medicare. This means no more HSA contributions! If you want to keep contributing to your HSA, consider delaying Social Security payments until age 70. Not only will you be able to keep contributing to your HSA, but your Social Security benefits will increase by 8% each year that you delay beyond age 65.
Example 3:John turned 65 and has a great HSA with $30,000 saved. He wants to keep contributing but knows that signing up for Social Security will automatically enroll him in Medicare. Instead, John decides to wait until age 70 to claim Social Security. During these extra five years, John adds another $42,725 to his HSA. By the time he’s 70, John not only has a much larger HSA, but he’s also getting higher monthly Social Security checks.
What If You’ve Already Enrolled?
If you’ve already signed up for Medicare or Social Security, it’s still possible to reverse your decision, but it must be done within 12 months of applying. You can withdraw your Social Security claim and disenroll from Medicare, but this process can be expensive since you’ll need to pay back any benefits you’ve received. Once you withdraw, you can restart HSA contributions.
Final Thoughts
HSAs are a fantastic tool for saving on medical costs, even after you turn 65, but the key is knowing how to navigate the rules. By delaying Medicare and Social Security, and staying on an employer’s HDHP, you could potentially contribute up to $42,725 more to your HSA after age 65. This is a significant boost to your retirement savings that can help you cover medical expenses tax-free!
Key Takeaways:
You can keep contributing to your HSA after 65 if you're covered by a large employer's HDHP and avoid enrolling in Medicare.
Delay Social Security to keep contributing to your HSA and boost your future Social Security payments.
If you’ve already enrolled in Medicare or Social Security, it might be possible to reverse the decision, but there are costs involved.
By carefully planning your health coverage and delaying Medicare or Social Security, you can maximize the benefits of your HSA and enjoy greater savings during retirement!
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