Using HSAs with Social Security and Medicare | A Guide to Health Care

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Americans are living longer, and that means they need to plan for future retirement more than ever. One way to do this is by using a health savings account (HSA). HSAs allow you to set aside tax-free money to cover your medical expenses. This guide will go over how you can use an HSA with Social Security and Medicare!

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HSAs and Medicare

Medicare is a federal health insurance program for people:

  • Who are 65 years or older
  • Certain younger individuals with disabilities
  • And those of any age with end-stage renal disease

It covers hospitalization (inpatient care), some medical services such as:

  • Diagnostic tests and physical therapy
  • Prescription drug coverage under Part D
  • Skilled nursing facilities when medically necessary during a short stay following an illness
  • Hospice care when medically necessary during a short stay or for an indefinite period
  • Home health services while recovering from surgery or illness

Medicare is not designed to be used as your sole source of coverage.

Individuals own HSAs, which becomes part of a worker’s retirement plan. Contributions to an HSA are nontaxable, so long as they stay below annual limits set by law.

Your Medicare Coverage Choices

Using HSAs with Social Security and Medicare - Your Medicare coverage choices

HSAs and Social Security

HSAs work in conjunction with Social Security and Medicare. Though the two programs are not directly related to HSAs, they provide information on how much money is needed for retirement.

Everyone has a social security number that is the first step to opening an HSA.

You can change your mind later and withdraw money from the account at any time as long as you are not using it for medical expenses like deductibles or copays on your health insurance plan. However, if there is still some money after turning 65, it may be subject to a penalty.

You can continue using an HSA even if you are on Medicare and have Part B coverage. However, your ability to use the money outside of medical expenses will depend on whether or not you need to pay for other out-of-pocket costs associated with Medicare.

You may also want to pay attention to the Medicare cost-sharing you have for different services. And weigh that against what your HSA can cover before deciding if it is worth paying annual Medicare Part B premiums or not.

Suppose you have Medicare and a 401(k) or other retirement accounts. In that case, it is important not to claim the HSA as income for tax purposes to avoid penalties on Social Security benefits. You can also use your income from these accounts when calculating how much money will be going into an HSA each year.

Suppose you are already collecting Social Security benefits and have a retirement account. In that case, the HSA must be treated as taxable income when calculating Medicare Part B premiums to avoid penalties on your future Social Security benefits.

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Final Words

I hope this article has helped you learn more about HSAs and how they can be used in conjunction with Social Security and Medicare. If it’s your first time reading about these types of programs, don’t worry- you’ve got plenty of time to figure out which one is right for you. The most important thing to remember is that HSAs are a great way to save money on taxes while protecting yourself against the risk of skyrocketing healthcare costs down the line. So take some time now, research different options, and make an informed decision before it’s too late!

HSA and Medicare: How to Avoid an IRS Penalty


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