If you’re nearing your mid-60s and actively contribute to a health savings account (HSA), you’ve likely used it to cover qualified medical costs. However, as you get closer to enrolling in Medicare, there are important timing rules and implications to understand. Failing to follow them could result in significant tax penalties.

In this week’s Money Wisdom Question Series, Heath Grossman, CFP® explains the timing and circumstances that determine when you should stop your HSA contributions.

HSA Eligibility Rules

HSAs allow you to pay for qualified medical expenses and offer triple tax savings. But neither you nor your employer can continue contributing to your HSA once you’ve enrolled in any part of Medicare. This includes Medicare Part A, even if that enrollment happens automatically when you begin collecting Social Security benefits.

If You’re Enrolling in Medicare at 65

If you plan to enroll in Medicare at age 65, you should generally stop all HSA contributions before your birth month. If your birthday falls on the first day of the month, you should stop making contributions by the beginning of the previous month.

If You’re Delaying Medicare Past 65

The rules become a little more complicated if you delay Medicare beyond age 65. When you eventually enroll, Medicare may apply Part A coverage retroactively for up to six months. Therefore, you should stop HSA contributions at least six months before enrolling in Medicare or claiming Social Security benefits. Doing so could help you avoid unwanted tax consequences.

What to Keep in Mind

Remember, these rules apply only to making contributions to an HSA. Once enrolled in Medicare, you can still use the money in your HSA to cover expenses such as monthly premiums for Medicare Parts A, B, C, and D. What’s more, once you turn 65, you can use your HSA to also pay for non-qualified expenses without incurring penalties.