The interaction between Medicare and Health Savings Accounts (HSAs) can lead to costly mistakes for New Mexicans working past age 65. Enrolling in any part of Medicare (including premium-free Part A) immediately ends your eligibility to contribute to an HSA, and Medicare's 6-month retroactive enrollment can create tax penalties on contributions made before your application.
The reason is an IRS rule: to contribute to an HSA, you must be covered by a High Deductible Health Plan (HDHP) and have no other health coverage. Medicare counts as other coverage, even Part A that you pay no premium for. Once your Medicare coverage starts, your HSA eligibility ends.
The 6-Month Part A Lookback Rule
When you enroll in Medicare Part A after age 65, your coverage starts up to 6 months before your application date—but no earlier than your 65th birthday month. This retroactive coverage is automatic and cannot be declined.
The HSA Problem: If you make HSA contributions during these retroactive months, the IRS treats them as excess contributions. Unless you withdraw them (and their earnings) by your tax-filing deadline, you'll owe a 6% excise tax for every year they stay in the account. Excess contributions made pre-tax through payroll also become taxable income.
Example
You turn 65 in March 2026, keep working with HDHP coverage, and keep contributing to your HSA. In December 2026 you apply for Medicare Part A. Medicare backdates your Part A to June 2026, six months before your application. You were HSA-eligible only for January through May, so your 2026 limit drops to five-twelfths of the annual amount, and anything you contributed above that is an excess contribution to withdraw before you file your taxes.
What You Need to Do
- Stop HSA contributions 6 months before applying for Medicare (or Social Security, which enrolls you in Part A automatically).
- Enrolling as soon as you turn 65? Part A can't start before your 65th birthday month, so there is no lookback to worry about. Your last eligible month is the month before your Medicare starts.
- Pro-rate your final year's contribution. Your annual limit is reduced to one-twelfth for each month you were HSA-eligible. If you contributed the full annual amount, you may owe taxes on the excess.
- Have your employer stop their HSA contributions too. Employer contributions count against your annual limit.
- You can still USE HSA funds after Medicare enrollment. You just can't contribute new money.
What Counts as "Enrolled" in Medicare?
Being eligible for Medicare is not the same as being enrolled:
- Enrolled in Part A or Part B = not HSA-eligible
- Eligible for Medicare but not enrolled = still HSA-eligible
- Receiving Social Security retirement benefits at 65+ = automatically enrolled in Part A (not HSA-eligible)
- Receiving Social Security disability benefits for 24 months = automatically enrolled in Parts A and B (not HSA-eligible)
Good news: If you've never enrolled in Medicare and aren't receiving Social Security, you can keep contributing to your HSA past age 65. Many people do this until age 70 or beyond.
2026 HSA Contribution Limits
| HSA Type | 2026 Limit |
|---|---|
| Self-only coverage | $4,400 |
| Family coverage | $8,750 |
| Catch-up (age 55+) | $1,000 additional |
Strategic Considerations
If you have a high-deductible health plan with an HSA and want to maximize HSA savings, you have two main strategies:
- Delay Medicare entirely (delaying Part B safely requires coverage from current employment; if the employer has fewer than 20 employees, Medicare usually pays first, so check with the employer before delaying)
- Delay Social Security for as long as you want to keep contributing, up to age 70. Once you take Social Security, you're automatically enrolled in Part A and cannot opt out. Delaying Social Security keeps your HSA contributions legal.
Important: If you've already started Social Security retirement benefits, you cannot decline Part A—they're linked. The only way out is to withdraw your Social Security application, which is allowed only within 12 months of starting benefits and requires repaying everything you received.
Is Premium-Free Part A Worth Giving Up Your HSA?
Some people take premium-free Part A "just in case," since it costs nothing. If you're still working and your employer plan is your primary coverage, though, Part A adds little, while HSA contributions lower your taxable income now, grow tax-free, and come out tax-free for medical expenses.
In 2026, someone 65 or older can contribute up to $5,400 (self-only HDHP) or $9,750 (family HDHP), including the catch-up. In the 24% federal tax bracket, that's roughly $1,296 to $2,340 in federal income tax saved each year.
LANL, Sandia, and Other New Mexico Employers with HDHPs
Many Los Alamos National Laboratory and Sandia National Laboratories employees have HSA-eligible HDHPs. If you plan to keep contributing past 65:
- Confirm with HR that your plan is HSA-qualified and that your employer has 20 or more employees, so your plan stays primary
- Don't apply for Social Security retirement benefits yet
- Delay all Medicare enrollment until you stop HSA contributions
- Stop contributions 6 months before your planned Medicare start, and line that date up with your retirement and your Part B Special Enrollment Period
Frequently Asked Questions
Can I keep my HSA after enrolling in Medicare?
Yes. You keep your HSA balance and can use it tax-free for qualified medical expenses, including Medicare Part B, Part D, and Medicare Advantage premiums. Medigap premiums are not a qualified expense. You just cannot make new contributions.
Does Medicare Part A enrollment really disqualify me from HSA contributions?
Yes. IRS rules require that you have no health coverage other than an HDHP. Medicare Part A counts as other health coverage even though most people pay no premium for it.
What if I'm already collecting Social Security?
If you collect Social Security at 65 or older, you are automatically enrolled in Part A and cannot decline it while you receive benefits. To keep contributing to an HSA, you generally need to wait to start Social Security.
Don't Risk an HSA Tax Penalty
The Medicare-HSA rules can be easy to get wrong when you work past 65. A licensed insurance agent can review your specific situation and help you time enrollment properly.