Health Savings Accounts (HSAs) offer a flexible and tax-advantaged way to save for medical expenses, and their benefits continue to evolve as you and your partner age. Here’s what happens to your HSA when you both turn 65:

Tax-Free Withdrawals for Medical Expenses

Once you turn 65, you can still withdraw funds from your HSA tax-free for qualified medical expenses. This includes out-of-pocket healthcare costs, such as doctor's visits, prescription medications, and hospital stays. The tax advantages that you enjoyed before 65 continue to apply, allowing you to manage your healthcare expenses effectively.

Non-Medical Withdrawals Without Penalties

After 65, you can also use your HSA funds for non-medical expenses without incurring a penalty. While these withdrawals will be taxed as regular income, the 20% penalty that applies to non-medical withdrawals before 65 is waived. This makes your HSA funds more versatile, giving you additional financial flexibility in retirement.

Medicare Premiums and Expenses

You can use your HSA to pay for certain Medicare premiums and out-of-pocket expenses. This includes premiums for Medicare Part B (medical insurance), Part D (prescription drugs), and Medicare Advantage plans. However, you cannot use HSA funds to pay for Medigap premiums. Being able to use HSA funds for Medicare-related expenses can significantly reduce your healthcare costs in retirement.

Continued Tax Advantages

The contributions you made to your HSA over the years continue to grow tax-free. Even though you can no longer make new contributions to your HSA once you enroll in Medicare, the funds in your account can still be invested and continue to grow tax-free. This ongoing growth can provide a valuable source of funds for future healthcare needs.

Can You Contribute More After 65?

Once you enroll in Medicare, you can no longer contribute to your HSA. However, the funds already in your account can still be used and grow tax-free. It's important to plan your contributions up to age 65 to maximize your HSA balance for retirement.

Estate Planning Benefits

If your spouse is the designated beneficiary of your HSA, the account can be transferred to them upon your death without any tax consequences. The HSA then becomes their own, and they can use it for their medical expenses under the same tax-advantaged rules. This makes HSAs a useful tool for estate planning, ensuring that your healthcare savings can continue to benefit your partner.

Conclusion

Turning 65 brings several changes to how you can use your HSA, but the account remains a valuable tool for managing healthcare costs and providing financial flexibility. By understanding these changes, you can make informed decisions that maximize the benefits of your HSA in retirement. For more insights and tips on managing your HSA, visit HSA Guide and stay informed about your health savings options.