HSA Medicare Penalty: Can You Defer Part B and Keep Contributing?

by | May 15, 2025 | Medicare Advice

Impact of Deferring Medicare Part B on HSA Contributions for Working Seniors

If you’re still working on an HSA-qualified HDHP and approaching Medicare, you’ve probably heard about the HSA Medicare penalty. Here’s the plain-English version: once you enroll in any part of Medicare—Part A or Part B—you can’t make new HSA contributions. Enrolling anyway and continuing to contribute can create excess contributions that may trigger penalties.

HSA & Medicare Basics (Fast Refresh)

  • HSA eligibility: You must be covered by an HSA-qualified HDHP and not enrolled in Medicare.
  • Medicare Part A: Hospital insurance. Enrollment generally ends HSA contribution eligibility and can be retroactive up to 6 months (not before age 65).
  • Medicare Part B: Outpatient/medical insurance. Enrollment also ends HSA contribution eligibility.

New to timing Medicare correctly? Start here: Turning 65: How to Set Up Medicare Without Lifetime Penalties.

What Triggers the “HSA Medicare Penalty”?

Contributing to your HSA for any month you’re enrolled in Medicare (A or B) creates excess contributions. Those excess amounts can be subject to a 6% excise tax each year they remain in the HSA. You can usually fix this by asking your HSA custodian to remove the excess contributions (and related earnings) before your tax filing deadline.

Want to avoid common pitfalls? Read Medicare Mistakes to Avoid.

Deferring Medicare Part B to Keep HSA Contributions

If you’re working and covered by an HSA-qualified employer plan, you may defer Part B and continue HSA contributions—as long as you also defer Part A. Taking Part A (even “free” Part A) ends HSA contribution eligibility and its coverage can backdate up to 6 months. That’s why many people stop HSA contributions 6 months before any planned Medicare enrollment.

For policy updates that can affect timing and penalties, see Medicare Changes.

Case Study: John Defers Part B (and Part A) to Max Out His HSA

  1. Age 67 and working: John stays on his employer’s HSA-qualified HDHP.
  2. Defers Part A and Part B: He keeps contributing to his HSA, including catch-up contributions at 55+.
  3. Retires at 70: John enrolls in Part B (and Part A) during his Special Enrollment Period (SEP) tied to active employer coverage—no late penalty.

When you’re ready to switch coverage, make sure you understand your SEP rules to avoid penalties and gaps.

Key Considerations Before You Defer

  • Confirm your plan is HSA-qualified: Not every employer plan qualifies.
  • Know your SEP rights: When employer coverage ends, you typically get an 8-month SEP to enroll in Part B without a late penalty.
  • Watch Part A retroactivity: Plan to stop HSA contributions 6 months before you take Medicare.
  • Coordination of benefits: Understand how employer coverage and Medicare will hand off when you enroll.

Already on Medicare? Smart Ways to Use Your Existing HSA

  • Spend tax-free on qualified expenses (deductibles, copays, many dental and vision costs).
  • Medicare premiums: You can pay Part B, Part D, and Medicare Advantage premiums with HSA funds. Medigap premiums are not eligible.
  • No new contributions: Once enrolled in Medicare, stop making new HSA contributions.

Budgeting & Next Steps

  • Estimate premiums, prescriptions, and out-of-pocket costs.
  • Compare Original Medicare + Medigap vs. Medicare Advantage based on your doctors, drugs, and travel needs.
  • Time your enrollment carefully to avoid penalties and maximize HSA tax benefits.

Need a timing checklist? See How to Set Up Medicare Without Lifetime Penalties.

FAQs: HSA, Medicare, and Penalties

What is the “HSA Medicare penalty” in simple terms?

It’s not a single Medicare fee; it’s the 6% excise tax on excess HSA contributions made for months you were enrolled in Medicare. Remove excess contributions (and earnings) by your tax deadline to reduce/avoid the tax.

Can I keep contributing if I only defer Part B, but take Part A?

No. Part A enrollment alone ends HSA contribution eligibility and can be retroactive up to 6 months.

How do I avoid the penalty when I’m close to enrolling?

Stop HSA contributions 6 months before your planned Medicare start date (or earlier if needed), especially if you will take Part A.

Can I pay Medicare premiums from my HSA?

Yes—Part B, Part D, and Medicare Advantage premiums are eligible. Medigap premiums are not.

What if my employer accidentally contributes after I start Medicare?

Ask your HSA custodian to remove the excess contributions and earnings. Coordinate quickly with HR/benefits to prevent repeat contributions.

Helpful references: IRS Publication 969 (HSAs) and Medicare.gov: Should I Get Parts A & B?

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To discuss your Medicare needs or upcoming enrollment, you can:

About the Author

Matt Feret is the author of the Prepare for Social Security – The Insider’s Guide and the Prepare for Medicare – The Insider’s Guide book series and launched PrepareforSocialSecurity.com and PrepareforMedicare.com to help people get objective answers to questions about Social Security and Medicare. Matt is also the host of The Matt Feret Show. He has held leadership roles at numerous Fortune 500 Medicare health insurers in sales, marketing, operations, product development, and strategy for over two decades.

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Whether you’re new to Medicare, turning 65, retiring, or looking to change plans, the licensed agents at Brickhouse Agency offer free, no-obligation consultations to walk you through your options.

Required Medicare Disclaimer: No obligation to enroll. Brickhouse Agency does not offer every plan available in your area. For information on all your options, visit Medicare.gov or call 1-800-MEDICARE.