If you are still working and covered by an employer health plan in the Omaha metro, an HSA can be a useful part of your overall retirement plan. But the rules get more important as you approach Medicare. One of the most common mistakes is assuming you can keep contributing right up until Medicare starts, only to find out later that Medicare timing can create excess contributions.
A Health Savings Account, or HSA, is a tax-advantaged account available to people who qualify under IRS rules. The basic appeal is straightforward: eligible contributions can be deductible or excluded from income, earnings can grow tax-free, and withdrawals for qualified medical expenses can also be tax-free. Unlike a Flexible Spending Account, HSA money generally rolls forward and stays with you if you change jobs or leave the workforce.
Who can contribute to an HSA?
To contribute to an HSA, you must be covered by a qualifying high-deductible health plan, have no disqualifying health coverage, not be enrolled in Medicare, and not be claimed as someone else’s dependent. For 2026, the IRS set the HSA contribution limits at $4,400 for self-only coverage and $8,750 for family coverage, with an additional $1,000 catch-up contribution for people age 55 and older. For 2026, an HSA-qualified high deductible health plan must have a deductible of at least $1,700 for self-only coverage or $3,400 for family coverage.
Retirement itself does not automatically end HSA eligibility. Medicare does. So if someone is retired but still has qualifying HDHP coverage and has not enrolled in Medicare, they may still be eligible to contribute. Once Medicare begins, however, the IRS says the contribution limit becomes zero starting with the first month of Medicare enrollment, including retroactive months.
What can HSA money be used for?
HSA money can be used tax-free for qualified medical expenses such as doctor visits, hospital care, prescriptions, dental treatment, vision care, and many other IRS-approved expenses. Two rules matter here. First, the expense must be incurred after the HSA is established. Second, you cannot use the same expense for multiple tax benefits. If it was reimbursed from another source, or already used as an itemized deduction, it cannot also support a tax-free HSA withdrawal.
Insurance premiums are where people often get tripped up. In general, HSA money cannot be used for regular health insurance premiums. But the IRS allows exceptions for qualified long-term care insurance, COBRA coverage, health coverage while receiving unemployment compensation, and Medicare premiums after age 65. Medigap premiums are not considered qualified HSA expenses.
Best ways to contribute
Payroll contributions are often the most tax-efficient option. IRS guidance says employer contributions, including salary reduction contributions made through a cafeteria plan, may be excluded from gross income, and employer HSA contributions generally are not subject to employment taxes. Employer contributions still count toward the annual contribution limit, so they need to be included when calculating how much room is left for the year.
You can also make direct contributions with after-tax dollars and generally deduct them on your federal return. Another option is a qualified HSA funding distribution, which allows a direct transfer from a traditional IRA or Roth IRA into the HSA. That transfer is not included in income, but it does count toward your HSA contribution limit and comes with a testing period.
The Medicare timing mistake to avoid
This is the part many adults nearing 65 need to pay attention to. Medicare.gov states that if you sign up later for premium-free Part A, your Part A coverage can begin up to 6 months before the month you apply, but not earlier than the month you turned 65. The IRS also says that HSA contribution eligibility becomes zero for months you are enrolled in Medicare, including retroactive coverage.
That means someone who keeps funding an HSA right up until Medicare enrollment can accidentally create excess contributions for those lookback months. A practical planning step is to stop HSA contributions about 6 months before enrolling in Medicare if you are over 65 and planning to start Part A. This is especially important for people continuing to work past 65. It is wise to review that timing with both a tax professional and a Medicare advisor before filing enrollment paperwork.
Can an HSA help with Marketplace planning before Medicare?
For people not yet on Medicare, an HSA can sometimes help with health insurance planning, too. Hiatt Agency also helps clients with under-65 health insurance and ACA Marketplace options. Because direct HSA contributions are generally deductible, and HealthCare.gov says Marketplace MAGI starts with AGI plus only a few specific additions, HSA contributions can reduce the income figure used for premium tax credit calculations in some situations. That can matter for early retirees or for a younger spouse who is still buying coverage through the Marketplace. This is a tax-sensitive strategy, so it should be reviewed case by case.
Withdrawals, records, and beneficiary rules
Withdrawals used for qualified medical expenses are tax-free. If you use HSA money for non-medical purposes before age 65, the distribution is taxable and usually subject to an additional 20% tax. After age 65, non-medical withdrawals are still taxable, but the 20% additional tax no longer applies. That is why some people view the HSA as a medical account first, with added retirement flexibility later.
There is no requirement to reimburse yourself in the same year the expense happens, as long as the expense was incurred after the HSA was established. But the IRS expects solid records. You should be able to show that the expense was qualified, was not reimbursed elsewhere, and was not already taken as an itemized deduction. Beneficiary designations matter too. If a spouse is the beneficiary, the HSA keeps its status after death. If the beneficiary is not a spouse, the account stops being an HSA, and the balance generally becomes taxable income in the year of death.
A smart planning tool, if the timing is handled correctly
An HSA is more than a way to pay today’s deductible. It can reduce taxable income, help cover eligible medical costs in retirement, and make the years leading up to Medicare a little more manageable. The key is understanding the transition rules before they become a problem.
For Omaha-area adults who want help coordinating Medicare timing with current health coverage, Mary Hiatt is a local independent Medicare agent licensed in Iowa and Nebraska who specializes in helping adults 65-plus navigate Medicare, health coverage options, and long-term care planning. To start a conversation, visit Hiatt Agency or use the site’s contact page.
This article is for educational purposes only and should not be treated as tax or legal advice. Rules can change, and individual facts matter.