5 Things You Need to Know About Finances When Turning 65

Unless you’re working and have health insurance from your employer (or your spouse’s employer), you usually need to sign up for Medicare at age 65. Medicare Part A, which covers hospitalization, is free for most people, so they generally sign up at 65 even if they’re working (unless they want to contribute to a health savings account, or HSA).

But Medicare Part B, which covers doctor and outpatient services, costs $174.70 per month in 2024 (more for high earners), so some people delay signing up for Part B while they are working. You must sign up within eight months after you leave your job and lose your employer’s coverage to avoid a late enrollment penalty of 10 percent of the cost of Part B for every 12 months you should have been enrolled in Medicare but were not.

Also, if you don’t have health insurance from an employer with 20 or more employees, Medicare generally becomes your primary coverage at age 65 and your other insurance becomes secondary (including retiree health benefits and COBRA coverage). If you don’t sign up for Medicare at that point, you could have expensive gaps in coverage.

3. You can use your HSA for more expenses

A health savings account can provide a triple tax break:

• Your contributions are tax-deductible (or pretax if through your employer).
• The money grows tax deferred, and you can withdraw it tax-free for eligible medical expenses at any time.
• When you turn 65, you can withdraw the money tax-free for a broader range of medical expenses, including Medicare premiums.

You have to stop making HSA contributions when you enroll in Medicare Part A or Part B, but some people who are still working for a large employer delay signing up for Medicare so they can keep contributing. For you to be eligible to make HSA contributions for 2023, your policy must have a medical insurance deductible of at least $1,500 if you have self-only coverage, or $3,000 for family coverage. Those limits increase to $1,600 and $3,200, respectively, in 2024.

Even if you can no longer make new HSA contributions, you can keep the money growing in the account for future expenses. Before age 65, you usually must pay income taxes plus a 20 percent penalty on money you withdraw for anything other than qualified medical expenses. At 65, the penalty goes away — you only owe regular taxes on nonmedical withdrawals. (Withdrawals for qualifying medical purposes remain tax-free.)

“I always preach to my clients that they can use it as a second 401(k),” says Steven Hamilton, founder of Hamilton Tax & Accounting in Grayslake, Illinois.

And you have more ways to avoid the taxes. As a 65-plus HSA owner, you can take tax-free withdrawals to pay premiums for Medicare Part B, Part D prescription drug coverage and Medicare Advantage plans (but not Medigap) for yourself and your spouse, says Roy Ramthun, president of HSA Consulting Services.

4. You get a bigger standard deduction and other tax breaks

Starting in the year you turn 65, you qualify for a larger standard deduction when you file your federal income tax return.

The standard deduction for the 2023 tax year is generally $13,850 for single filers, $20,800 for heads of household and $27,700 for married couples filing jointly. Single filers and heads of household who are 65 or older qualify for an extra $1,850 standard deduction. Married couples can get an extra $1,500 if one spouse is 65 or older, $3,000 if both are.

The standard deduction for 2024 will be $14,600 for singles, $21,900 for heads of household and $29,200 for joint filers. The extra deductions for 65-plus taxpayers go up to $1,950 for individuals and $3,100 for couples.

Low-income people 65 or older may also qualify for a tax break called the Credit for the Elderly or the Disabled. The IRS has more tips for older taxpayers.

You may also qualify for extra state or local tax breaks at 65. “A lot of state and local jurisdictions freeze property tax assessments for people age 65 and older,” says Hamilton.

Some states subtract a fixed dollar amount from your home’s assessed value or your property tax bill. Older veterans and those with service-related disabilities may qualify for additional property tax breaks. Contact your state department of revenue to find out if you are eligible for any breaks.

5. You can still save for retirement

If you’re still working at 65 — even if it’s just part-time or freelance — you can continue to save for retirement. You can contribute to a traditional or Roth IRA at any age, as long as you earned some income from working.

For the 2023 tax year, a 65-year-old saver (or anyone 50-plus) can contribute up to $7,500 to an IRA. (If your work income was less than that, you can only contribute as much as you earned.) If you’re working and your spouse is not, you can also contribute up to $7,500 to a spousal IRA on their behalf, as long as they are also at least 50. The contribution limits rise to $8,000 for people 50 or older in 2024.

“It’s definitely still helpful to keep saving if they have the ability to,” says Patrick Carney, a certified financial planner in Lancaster, Pennsylvania. “If someone works from age 65 to 75 and contributes $8,000 each year to a retirement account that grows at 5 percent a year, by age 75 they’d have more than $100,000 saved.”

Your contributions may also make you eligible for the “Saver’s Credit,” a federal tax break for people with lower incomes who put away money for retirement.

Taxpayers with 2023 adjusted gross income up to $36,500 for a single filer, $54,750 for a head of household or $73,000 for a married couple filing jointly can receive a tax credit for 50 percent of their contribution to a retirement account, up to a maximum credit of $1,000 per person. (Both spouses in a couple can take the credit if they both made qualifying contributions.) The income limits rise in 2024 to $38,250 for singles, $57,375 for heads of household and $76,500 for joint filers.