As one ages, the rule of thumb is to shift toward a less-aggressive portfolio that’s more of a match for one’s risk tolerance.
As their tolerance for risk declines and their health care spending goes in the opposite direction, it’s a good idea for older savers to revisit the investment mix in their health savings account.
One is normally 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.
Those still working and not yet on Medicare may be able to continue making pretax HSA contributions. Some in this cohort delay signing up for Medicare in order to make HSA contributions, especially if their employer contributes some money to the account.
Anyone who continues to work, keeping their employer coverage, won’t pay a penalty for delaying Medicare enrollment. At the same time, if you sign up for Part A after 65, you could be penalized for contributing to an HSA during a six-month period of retroactive Medicare coverage. Stop contributing to your HSA at least six months before enrolling in Medicare in order to avoid the penalty.
Once you stop contributing to an HSA, you will still be able to withdraw the money in the account tax-free for all sorts of out-of-pocket medical expenses and other eligible costs that aren’t covered by insurance, e.g. vision, hearing, and dental care, as well as co-pays for prescription drugs. The funds may also be used to pay premiums for Medicare Part B and Part D or a Medicare Advantage plan. After age 65, you can use the account for nonmedical expenses without paying a penalty, although you will have to pay income taxes on the amount withdrawn.
For more information, please read:
HSA Investing When You’re Over 65 | Kiplingers