Using HSAs for Medicare Expenses: What You Should Know

Understanding how HSAs and Medicare work together

Using HSA funds for Medicare premiums and expenses

Your HSA can play an important role in managing healthcare costs during retirement. Qualified medical expenses such as these remain tax-free:

• Medicare Parts A, B, and D premiums
• Long-term care insurance premiums (within IRS limits)
• Dental, vision and hearing care not covered by Medicare
• Prescription medications
• Qualified out-of-pocket medical expenses for you, your spouse or eligible dependents

You can also reimburse yourself later for qualified expenses paid out of pocket, as long as the expense occurred after your HSA was established and you kept proper documentation.

Ineligible items include Medigap or Medicare supplement plan premiums and cosmetic procedures or non-medical expenses. If you use your HSA funds for these before age 65, you’ll owe taxes and a penalty. After age 65, the penalty no longer applies, but non-medical withdrawals are subject to income tax.

For the full list of qualified medical expenses, refer to IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans.

Planning ahead before Medicare enrollment

If you’re still eligible to contribute, a smart strategy is to increase your HSA balance before Medicare enrollment begins. All HSA contributions made while you’re covered under a qualifying HDHP can reduce your taxable income as you build a valuable healthcare fund for retirement and future qualified medical expenses. 

2025 HSA contribution limits:

• Individual coverage: $4,300
• Family coverage: $8,550
• Additional catch-up (age 55+): $1,000

2026 HSA contribution limits:

• Individual coverage: $4,400
• Family coverage: $8,750
• Additional catch-up (age 55+): $1,000

You can contribute up to the annual limits until the first month you’re enrolled in Medicare. Be sure to know your HSA contribution limits, as they can change every year.

Many people choose to maximize their HSA in the year leading up to retirement to take full advantage of the triple tax benefits: tax-free contributions, earnings and withdrawals for qualified expenses.

Tax and withdrawal rules after age 65 for healthcare planning

After age 65, your HSA funds will stay tax-free when you use them for qualified medical expenses. You can also use them for non-medical purposes without the additional penalty, but they’ll will be treated as taxable income.

Once you’re receiving Medicare benefits, you can no longer contribute to your HSA, but any existing account balance will still be available for future expenses. Keeping accurate records is key, especially when using funds for different types of costs or coordinating HSA withdrawals with other retirement income sources.

Key takeaways

• You can no longer contribute to an HSA once you enroll in Medicare, but the funds you’ve saved remain yours to use tax-free for qualified medical expenses.
• HSA dollars can help pay Medicare Part B, Part D and Medicare Advantage premiums, as well as eligible out-of-pocket costs.
• To avoid penalties, plan to stop contributions about six months before Medicare begins, since enrollment can be retroactive.
• After age 65, non-medical withdrawals become taxable income but are no longer subject to the additional penalty.
• Keeping good records ensures your HSA withdrawals stay compliant and tax efficient.

Explore Associated Bank’s health savings account (HSA) options to plan confidently for future healthcare costs.

For additional details, contribution limits and eligibility information, visit the Associated Bank HSA Frequently Asked Questions page.