It’s a common scenario: You’ve retired and have gone on Medicare, but you still have leftover funds in your HSA. Now that you’re not on a high-deductible plan, what should you do with the remaining balance?
Even though you have left your old health plan, you are not required to spend the remaining balance right away. In fact, that course of action is strongly discouraged. Although you can no longer make contributions to it, your HSA account will still grow tax-free.
If you withdraw money from an HSA for non-medical expenses prior to age 65, you will face a 20% penalty on the sum, plus it will be taxed as part of your income. Once you’ve turned 65, however, you are allowed to withdraw your HSA money for any reason without triggering a penalty – but you will still owe income tax on the withdrawals. Because of this, non-medical expenses are not the best use of your HSA funds.
Your HSA Balance Can Still be Used for Medical Expenses
Luckily, even though you are now a medicare beneficiary, you are still able to spend your HSA balance on qualified medical expenses, without owing income tax on the withdrawals. If you are over 65, you can even use your HSA funds tax-free to pay for Medicare insurance premiums, with the exception of Medicare Supplement (Medigap) premiums. You are also allowed to take money out of your HSA to reimburse yourself for qualified medical expenses that you incurred — but did not pay for from your HSA — at any time after the account was created, so long as you have a record of the payment such as invoices or bills.
If you are nearing or already 65 and would like more information on Medicare Plans in Washington State, please visit our Overview of Medicare, as well as our guide for those who are New to Medicare. For assistance in choosing a Medicare plan, contact us to get in touch with a licensed insurance agent today!