Retiring in January? Your HSA Contributions Should Have Stopped in June.

Medicare Part A backdates six months when you sign up after 65 — and the IRS counts every HSA dollar from those months as excess. Here’s the $2,700 math and the fix that still works.

A 66-year-old still on the job puts $450 a month into a health savings account — the 2026 self-only limit of $4,400 plus the $1,000 catch-up for anyone 55 and older, spread across the year (IRS Rev. Proc. 2025-19; IRS Publication 969, 2025 edition). He plans to retire December 31 and sign up for Medicare and Social Security in January. Under the HSA Medicare six-month rule, Part A won’t start in January. It starts in July 2026 — and the $2,700 he contributed from July through December is now an excess contribution.

Two federal agencies spell it out — in a booklet and a tax publication most people never open. Fall, when year-end retirements get planned, is when it bites.

What the rule actually says

Social Security puts it in one sentence: “Part A coverage begins up to 6 months before the month you apply if you are over 65” (SSA, “When to sign up for Medicare,” updated June 10, 2025). The backdating can’t reach earlier than the month you turned 65, but for anyone well past that birthday, it’s a full six months.

The IRS closes the loop: “Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. This rule applies to periods of retroactive Medicare coverage” (IRS Publication 969). When a congressman asked the IRS in 2016 whether a constituent caught this way could get a break, the Chief Counsel’s office answered plainly: “There are no exceptions to this rule” (IRS Information Letter 2016-0082, Nov. 10, 2016).

Medicare.gov’s own advice for people working past 65: “you and your employer should stop contributing to your HSA 6 months before you retire or apply for benefits from Social Security” (Medicare.gov, “Working past 65”). Note the words and your employer. Company matches count too.

What this means for your wallet

Your allowed 2026 contribution is prorated by the month (Pub. 969’s own example: enroll in July, and a $5,300 self-only limit becomes $2,650). For our January retiree: six clean months out of twelve, so $2,700 allowed, $2,700 excess.

Excess contributions get a 6% excise tax, figured on Form 5329, and “the excise tax applies to each tax year the excess contribution remains in the account” (IRS Pub. 969). On $2,700, that’s $162 — not once, but every April until it’s pulled out. A couple on family coverage, both over 55, can put in up to $10,750 for 2026 ($8,750 plus two catch-ups). Six excess months there is about $5,375, and the recurring tax is about $322 a year.

The bigger surprise is for people who take Social Security while still working. SSA is explicit: at 65 or older, receiving benefits means automatic Part A enrollment (SSA, June 2025), and its 2026 Medicare booklet spells out the trigger: “premium-free Part A coverage begins six months before the date you apply for Medicare (or Social Security/RRB benefits)” (SSA Publication 05-10043, April 2026). Part B is voluntary. Part A rides along with the check. The HSA door closes the month coverage starts — and that month is six months behind the application.

The fix, if you’re already past June

• Stop payroll deductions now. Every month you wait adds to the excess. Ask HR to switch off the employer contribution too.
• Withdraw the excess before you file. The IRS lets you take out the excess “and any net income attributable” without the 6% tax if you do it by your return’s due date, including extensions — so April 15, 2027 for 2026 money, or October 15 on extension (IRS Letter 2016-0082; Pub. 969). Most custodians call the paperwork an “excess contribution removal” form.
• Expect it on your return. The withdrawn amount goes back into income if it was excluded going in; employer money you have to report shows up as “other income” (Pub. 969). It’s a tax bill, not a penalty, and it’s smaller than 6% forever.
• Not yet 65 and a half? If you’re under six months past your 65th birthday, the backdating stops at your birthday month. Turned 65 in October? A January application only reaches back to October.

What your HSA is still good for

The account doesn’t close. After 65, you can spend it tax-free on Part B and Part D premiums, Medicare Advantage premiums, deductibles, copays, dental, and hearing aids. The one thing on the IRS list it won’t cover: “premiums for a Medicare supplemental policy, such as Medigap” (Pub. 969). And once you’re Medicare age, non-medical withdrawals lose the 20% additional tax and are taxed as ordinary income (Pub. 969; IRS Letter 2016-0082). Stop putting money in; keep taking money out.

The takeaway: count back six months from the month you’ll apply for Medicare or Social Security, and stop HSA contributions — yours and your employer’s — before that month starts. If you’re already inside the window, the excess removal form fixes it before April.

Related: The $62,600 ACA subsidy cliff for early retirees · Behind on estimated taxes? The December IRA-withholding fix · More on taxes

This is information, not financial or tax advice — talk to a licensed tax professional about your situation. Senior Savers has no financial relationship with any HSA custodian, insurer, or company named here, and there are no affiliate links in this post.

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