You can continue to use the funds in your account tax-free for out-of-pocket health expenses. If you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copayments and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplement insurance or “Medigap” policy.
Once you turn age 65, you can also use your account to pay for things other than qualified medical expenses. If you do choose to use your account for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 20 percent penalty on the amount withdrawn.