HSA Investing When You're Over 65

Question: What are my investment options after age 65 with the remaining balance in my health savings account?

Answer: As with your retirement accounts, you’ll generally want to shift toward a less-aggressive portfolio as you age to match your risk tolerance. That means decreasing the percentage you hold in stocks and increasing your cash and bond holdings. If you’re likely to need to withdraw the money from the account soon, keep a portion of the funds in the HSA’s money market or checking account so it’s not affected by market fluctuations.

Fees and investing options vary from one HSA administrator to the next, but you’ll generally be able to select from a menu of mutual funds, exchange-traded funds, stocks and bonds. Many plans also offer target-date funds, which automatically adjust your portfolio to an increasingly conservative mix of investments over time. You can find HSA administrators and compare fees and investing options at HSAsearch.com.

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If you’re still working and not yet on Medicare, you may also be able to continue making pretax HSA contributions. To qualify, you must have a high-deductible health insurance policy (with a deductible of at least $1,350 for individual coverage or $2,700 for family coverage in 2019) and must have not enrolled in either Medicare Part A or Part B. Some people who are still working delay signing up for Medicare (even premium-free Part A) so they can make HSA contributions, particularly if their boss contributes some money to the account. (The average employer contribution to an HSA was $1,277 for individual coverage and $2,119 for family coverage in 2018, according to the Kaiser Family Foundation.)

As long as you continue to work and keep your employer coverage, you won’t pay a penalty for delaying Medicare enrollment. But if you sign up for Part A after your 65th birthday, Medicare coverage is retroactive for up to six months, and you could face penalties for contributing to an HSA during that time. To avoid the penalty, stop contributing to your HSA at least six months before enrolling in Medicare.

After you stop contributing to an HSA, you can still withdraw the money in the account tax-free for a wide range of out-of-pocket medical expenses and other eligible costs that aren’t covered by insurance, such as vision, hearing and dental care as well as co-pays for prescription drugs. The money can also be used to pay premiums for Medicare Part B and Part D or a Medicare Advantage plan (but not for medigap premiums). And you can take tax-free withdrawals to pay a portion of long-term-care insurance premiums based on your age (ranging from $420 if you’re 40 or younger to $5,270 if you’re 70 or older in 2019). After age 65, you can tap the account for nonmedical expenses without penalty, but you’ll have to pay income taxes on the amount you withdraw.