Turning 65 brings some big changes for retirees and near-retirees. At age 65 you become eligible for Medicare, and if you’ve been saving for retirement using an HSA, some key rule changes also kick in.

Here’s how turning 65 affects your HSA:

You no longer have a 20% penalty if you withdraw money from your HSA for non-qualified expenses.

Only certain health care costs are considered “qualified” medical expenses that you can pay with a tax-free withdrawal from your HSA. (You can search the Lively database to find out what medical expenses are eligible for tax-free treatment.)

Anyone under the age of 65 who uses their HSA to pay for something that is not a qualified expense must pay a 20% penalty. A perk of turning 65 is that the 20% penalty for non-qualified HSA withdrawals disappears.

An important caveat to keep in mind: when you make a non-qualified withdrawal you will owe income tax on the entire distribution, regardless of age. It’s just the 20% penalty that is no longer in play if you make an HSA withdrawal for a non-qualified expense.

No more contributions if you are enrolled in Medicare.

Once you enroll in Medicare you are not allowed to make new contributions to your HSA account. To be clear, nothing changes with the money you have saved - you just can’t add more into your account. You can still use these funds to pay for qualified medical expenses, but you can no longer contribute additional funds into your account.

You can pay most Medicare premiums with tax-free HSA withdrawals.

There are different pieces of the Medicare program, and most require enrollees to pay a monthly premium. Some Medicare premiums count as a “qualified medical expense” that you can pay with tax-free HSA dollars.

Most people enrolled in Medicare receive Part A (in-hospital and skilled nursing home care) without paying any premiums. Medicare Part B covers doctor visits, tests, supplies, and preventive care. For Medicare Part B there is a monthly premium that ranges from $144.60 to $491.60 in 2020, depending on your income. Your Medicare Part B monthly premium is a qualified medical expense; you can pay it with tax-free dollars from your HSA.

If you are enrolled in a Medicare Advantage Plan (Medicare Part C) or the Prescription Drug plan for Medicare (Part D) you can also use tax-free HSA dollars to pay Part C and Part D premium costs.

However, if you have a Medigap policy – not a Medicare Advantage plan – using a withdrawal from your HSA to cover a Medigap premium does not qualify for tax-free treatment. You would owe income tax on withdrawals used to pay Medigap premiums.

If you are already receiving your Social Security benefit when you enroll in Medicare your monthly premiums are automatically deducted from your Social Security payment. In that case, you can take money out of your HSA tax-free to reimburse yourself for what was deducted from your Social Security payment to cover your eligible monthly Medicare premiums.

You can continue to contribute to an HSA if you delay signing up for Medicare.

If you are still working at age 65 and continue to be covered by an HDHP, you may decide to delay enrolling in Medicare. In that case, you can continue to contribute to your HSA.

Anyone at least 55 years old is eligible to make an additional HSA catch-up contribution of $1,000 in addition to the HSA contribution limits set by the IRS for individual and family accounts.