By Marc Gilman
Call (800) 927-9326 | Email marc@gilmanagency.com
Most people think of a Health Savings Account (HSA) as a way to cover this year’s deductible. But an HSA keeps working long after you stop contributing, including after you enroll in Medicare. Used well, it can pay many of your health costs in retirement completely tax-free.
HSAs keep growing in popularity. There were nearly 43 million HSAs as of June 30, 2026, up from about 32 million at the end of 2021, according to HSA consulting firm Devenir, as reported by The Wall Street Journal.
Our earlier post covered the 2027 HSA contribution limits and the Medicare timing rules. This post covers what comes next: how to spend your HSA in retirement, and what happens to it when you die.
Key Takeaways
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You can reimburse yourself from your HSA years after paying a medical bill, as long as the expense came after you opened the account and you kept records.
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Once you’re 65, HSA money can pay Medicare Part A, Part B, Medicare Advantage, and Part D premiums tax-free, including IRMAA surcharges. Medigap premiums don’t qualify.
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After 65, a withdrawal for a non-medical expense is taxed as income but has no 20% penalty.
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Only a spouse named as beneficiary can take over an HSA tax-free. For other heirs, the balance becomes taxable income in the year of death.
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You can invest HSA money, so a balance you don’t need now can keep growing for retirement.
Can You Reimburse Yourself From an HSA Years Later?
Yes. There is no deadline for reimbursing yourself, and you don’t have to withdraw money in the year you pay a bill. Unused HSA money carries over from year to year.
That creates a planning option. If you can afford to pay medical bills out of pocket now, you can leave your HSA invested and reimburse yourself years later, even in retirement, tax-free. The one requirement is that the expense was incurred after you opened your HSA.
The IRS asks you to keep records showing that each withdrawal:
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Paid for a qualified medical expense
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Wasn’t paid or reimbursed from another source
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Wasn’t taken as an itemized deduction in any year
You don’t send these records with your tax return, and your HSA provider doesn’t approve reimbursements. You’ll need them only if the IRS asks. Many people scan receipts into a folder or app so they’re easy to find decades later.
What Can HSA Money Pay For on Medicare?
HSA funds generally can’t pay insurance premiums. Once you’re 65, though, Medicare premiums become an exception. That lets you pay a large share of your retirement health costs with money that was never taxed.
IRMAA is the income-related monthly adjustment amount, an extra charge added to Part B and Part D premiums for people with higher incomes. Because it’s part of your Medicare premium, you can pay it from your HSA.
Two details to know. If you’re under 65, you generally can’t use your HSA for a spouse’s Medicare premiums, even if your spouse is 65 or older. And if your Part B premium is deducted from your Social Security check, you can reimburse yourself from your HSA for that amount, so keep your annual Social Security benefit statement with your records.
The full list of qualified expenses is in IRS Publication 502.
What Changes at Age 65?
At 65, the 20% penalty on non-medical HSA withdrawals goes away. You can take money out for any reason. A withdrawal for a non-medical expense is taxed as ordinary income, much like a traditional IRA withdrawal. A withdrawal for a qualified medical expense is still tax-free, which is why it pays to use your HSA for health costs first.
Age 65 is also when most people enroll in Medicare, and enrolling in any part of Medicare ends your ability to contribute. Premium-free Part A is usually backdated up to six months when you sign up after 65, so plan your last contributions carefully. Our 2027 HSA rules post explains the timing.
The money already in your HSA stays yours. You can keep it invested and keep spending it on qualified expenses for the rest of your life.
Who Can Inherit Your HSA?
Who you name as beneficiary decides how much of your HSA your heirs keep. The tax treatment differs sharply:
There is one break for non-spouse heirs. The taxable amount is reduced by any of your qualified medical expenses that they pay within one year after your death. Final hospital, hospice, or nursing-home bills can count.
This is an easy step to miss. Check the beneficiary on file with your HSA provider, and review it alongside the beneficiaries on your life insurance, annuities, and retirement accounts. If you’re married, naming your spouse keeps the account tax-free. If your heirs are in high tax brackets, you may want to spend down the HSA first and leave them other assets instead.
Should You Invest Your HSA?
Many HSA providers let you invest your balance in mutual funds or other investments, often once you keep a minimum amount in cash. Nearly 5 million HSAs are invested, according to Devenir, and those accounts averaged nearly $24,000.
Investing makes sense mainly for money you won’t need for several years. Keep enough in cash to cover your deductible and expected costs, and invest the rest for retirement. Investments can lose value, so match your choices to when you expect to use the money.
If your employer picked your HSA provider, you may be able to move your balance to another provider with better investment options or lower fees. Several independent groups rate HSA providers, including Morningstar.
What To Do Next
An HSA works best in retirement when it’s part of your Medicare plan, not an afterthought. Before your next birthday or enrollment period:
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Start saving receipts for medical expenses you pay out of pocket, so you can reimburse yourself later.
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If you’re on Medicare, decide whether to pay your Part B, Part D, or Medicare Advantage premiums from your HSA.
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Confirm the beneficiary on your HSA, and check that it fits with your other accounts.
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If you’re still working past 65, plan when to enroll in Medicare and when to stop contributions.
Call Gilman Agency at (800) 927-9326 or email marc@gilmanagency.com to schedule a review. If you would like us to contact you about your Medicare options, please complete our Permission to Contact form.
Sources
Rules on qualified premiums, records, non-qualified withdrawals, and beneficiaries come from IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. The list of qualified medical expenses is in IRS Publication 502, Medical and Dental Expenses. Account growth and investment figures from Devenir, plus the IRMAA and charity-beneficiary points, come from Laura Saunders, “How to Get All the Tax Benefits From Your Health-Savings Account“, The Wall Street Journal, Oct. 16, 2026.
This article is for educational purposes only and is not tax, legal, or investment advice. HSA rules are set by the IRS and can change. Consult a qualified tax professional about your situation. Gilman Agency is not affiliated with or endorsed by the U.S. government or the federal Medicare program.
