What to know if you’re nearing age 65 with an HSA
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Anyone who has a health savings account is probably familiar with its generous tax benefits. However, if you are approaching the age of 65, it is useful to make sure you know some basic rules.
HSAs come with a triple tax benefit: Your contributions are made pre-tax, any growth is tax-free, and withdrawals are tax-free as long as they are used for qualified medical expenses. And while these accounts are more common among younger generations, an increasing number of people are reaching retirement with one person by their side.
“More retirees are sitting on meaningful HSA balances without a clear plan for how to use them most effectively,” said certified financial planner Tom Geoghegan, founder of Beacon Hill Private Wealth in Summit, New Jersey.
Assets are highest in the 60-64 age group
Since HSAs were authorized in congressional legislation in 2003, their use has increased steadily over the years. Research from Deveniran HSA provider. By the end of 2024, assets reached $147 billion in approximately 39 million accounts; There was a 19% increase in assets and a 5% increase in the number of accounts compared to the previous year.
HSA assets are highest among people ages 60 to 64, at $19.4 billion across 3.1 million accounts, according to Devenir. This is followed by the 55-59 age group with $17 billion in approximately 3.5 million accounts.
But at the same time, the number of HSAs is highest among younger age groups; It is approximately 5.8 million in the 30 to 34 age group and approximately 5.3 million in the 35 to 39 age group. Assets in these accounts are $10.2 billion and $12.6 billion, respectively.
The use of HSAs is expected to continue to increase. The “big beautiful bill” enacted in July included provisions to expand access to HSAs, including making Affordable Care Act marketplace health plans HSA-eligible.
‘No statute of limitations’ to pay yourself back
You can only contribute to an HSA if you have a high-deductible health insurance plan. This year the contribution limit is $4,300 for individuals and $8,550 for family coverage. These in 2026 the limits will increase to $4,400 and $8,750, respectively. If you are 55 or older and not enrolled in Medicare, you are allowed to contribute an additional $1,000 annually.
While most HSA holders tend to spend the money in their accounts for healthcare expenses, the share of those investing their funds continues to grow, according to Devenir. By the end of 2024, approximately 3.5 million HSAs, or about 9% of all open accounts, had deposited some of their HSA money.
If you can use non-HSA money to cover urgent health care needs, you can leave the money in the HSA for as long as you want.
“There is no statute of limitations on reimbursement for your healthcare expenses,” said Ntina Skoteiniadis, an asset manager at Sheets Smith Wealth Management in Winston-Salem, North Carolina. This year, the firm ranked 35th on CNBC’s Financial Advisor 100 list.
And as long as you keep receipts for your healthcare expenses, you can pay yourself back in the years to come.
“You can [withdraw] It makes the money tax- and penalty-free, even if the expenses date back a long time,” Skoteiniadis said.
This can be especially helpful when it comes to tax planning in retirement, Geoghegan said.
“This gives retirees more control over their taxable income during high-income years or when coordinating with Roth conversions,” he said.
Bringing Medicare into the mix
One of the most important things you need to know about HSAs as you approach age 65 is Medicare.
This is the age at which you become eligible for coverage. However, you cannot contribute to an HSA when you are on Medicare, even if you only have Part A (hospital insurance). And since your Medicare coverage can be retroactive for six months, especially depending on when you enroll — even if you delay your enrollment because you have valid health insurance elsewhere — it’s important to make sure you’re not contributing during that time.
“Stop contributing to your HSA account six months before your Medicare start date,” Skoteiniadis said.
While you can’t make HSA contributions while on Medicare, you are allowed to use those funds to cover your expenses. Medicare Part B (outpatient), Part D (prescription drug coverage) premiums, as well as Advantage Plan premiums. But you can’t use it for Medigap premiums, Skoteiniadis said.
And, of course, these HSA funds can continue to be withdrawn tax-free as long as they are used to cover current or past qualified medical expenses.
Say goodbye to the 20 percent tax penalty
Once you turn 65, you’re allowed to use HSA money for nonmedical expenses, but those withdrawals will lose their tax-free treatment status.
“You can use it for other retirement expenses, but if it’s not for healthcare expenses, you have to pay taxes on the withdrawal,” said Carolyn McClanahan, CFP, founder of Life Planning Partners in Jacksonville, Florida.
The difference is that there is no 20% tax penalty for withdrawals made before age 65 for non-health-related expenses.
If you spend the money on expenses other than healthcare, it will be taxed at ordinary income tax rates.
Estate planning considerations
If your spouse is the beneficiary of your HSA, the account transfers upon your death and is not a taxable event.
However, this is not the case if you leave the account to someone who is not your spouse.
“Once your spouse becomes your beneficiary, the HSA simply becomes theirs and they can continue to use it for qualified medical expenses,” Skoteiniadis says. he said. “But if someone else inherits it, it stops being an HSA and it just becomes taxable income.”
In this case, he said, the beneficiary must withdraw all money from the HSA in the year of your death, and it will be subject to income taxes. The exception is if you use some of this money to cover the deceased’s medical expenses within a year, this amount will not be taxed.
