The 20% penalty on non-qualified withdrawals goes away, Medicare premiums become eligible, and you must stop contributing once you enroll in Medicare.
Three things change at 65:
1. The 20% penalty disappears. Withdrawals for any purpose become simply taxable income, like a traditional IRA. Qualified medical withdrawals remain fully tax-free.
2. Medicare premiums become qualified. Parts A, B, C, and D all qualify — but not Medigap supplements. This alone is worth thousands a year.
3. Contributions must stop when you enroll in Medicare. This is the one that costs people money. Medicare Part A enrollment is often retroactive up to six months, so contributions you made in that lookback window become excess contributions subject to penalty. If you plan to work past 65 and keep contributing, stop contributions six months before you enroll.
Delaying Social Security matters here too: claiming Social Security triggers automatic Part A enrollment, which ends HSA eligibility whether you wanted it to or not.