The Six-Month Medicare Lookback That Costs a 66-Year-Old HSA Holder $7,800 in Excess Contributions Penalties She Didn’t See Coming

Contributing to a health savings account, or HSA, makes a lot of sense when you’re eligible to participate in one of these accounts. That’s because HSA contributions qualify for a tax break. And once you contribute money to an HSA, it gets to grow tax-free and is eligible for tax-free withdrawals for qualified medical expenses. 

Many people assume they can continue contributing to an HSA as long as they’re enrolled in a qualifying high-deductible health plan. What you may not realize is that if you keep working past age 65, it’s important to stop HSA contributions. 

The problem with funding an HSA after 65

The earliest age you can claim Social Security is 62. If you file for benefits before age 65, then once you turn 65, you’ll typically be enrolled in Medicare automatically. 

That could be a problem for your HSA, because Medicare enrollees are not allowed to make HSA contributions. Once you’re on Medicare, you can use an existing HSA balance to pay for  qualified healthcare expenses. But you cannot contribute to an HSA once you’re enrolled in any part of Medicare, even if you only have Part A. 

So let’s say you keep contributing to your HSA past age 65 because you don’t realize that as a Social Security beneficiary, you were enrolled in Medicare automatically. Medicare has a six-month lookback rule that qualifies you for retroactive coverage dating back to your 65th birthday. That’s a good thing in theory, but it could be a major issue if you don’t stop funding your HSA. 

HSA contributions made during that six-month lookback period are considered excess contributions, because you’re considered a Medicare enrollee at that point. And the financial impact there could be significant.

Funding an HSA when you aren’t supposed to could cost you

Let’s say you put $9,550 into an HSA in 2025, which was the limit for someone 55 and over in 2025 contributing at the family level. You should expect to be subject to an excess contribution penalty of 6% on half that amount if you were enrolled in Medicare automatically at the midpoint of the year. 

But keep in mind that the penalty repeats annually until the excess amount and any related earnings in the account are corrected. It’s conceivable that over time, you could end up with $7,800 in penalties for making HSA contributions when that isn’t allowed. 

Fortunately, the solution is straightforward. Anyone planning to enroll in Medicare (or claim Social Security benefits, which can trigger automatic Medicare Part A enrollment) should stop HSA contributions at least six months before the expected enrollment date. 

It’s also important to recognize that if you are enrolled in Social Security at the time you become eligible for Medicare, your enrollment is typically automatic. Many people don’t realize that enrollment happens automatically, which is where they get into trouble with HSA contributions. But understanding how Medicare, Social Security, and HSAs all interact could help you avoid costly penalties that can add up to a large amount of money over time.