Among the many benefits of a Health Savings Account (HSA) is having plenty of freedom in how you use it. From the amount of money you choose to contribute to your account to the qualified medical expenses you plan to cover, your HSA usage will be unique to you — and may even vary from year to year.
Simply put, there’s no one-size-fits-all strategy when it comes to planning your HSA. But that doesn’t mean you have to just wing it. You have the tools and resources at your fingertips to help you get a bird’s eye view (pun intended) of your HSA. And, it’s open enrollment season, which is a great time to review the basics of determining how much to contribute to your HSA.
Plan ahead with the HSA contribution calculator
Your HSA has a maximum limit you can contribute each tax year, as set by the Internal Revenue Service (IRS). To make sure you hit your maximum limit without getting penalized, use this handy contribution calculator and keep your contributions in check.
How to use a contribution calculator
Visit the HSA calculator and choose the correct tax year. (This is required to calculate the right maximum for a specific tax year.)
Enter your health plan type and confirm if you are age 55 or older, and then enter the amount you and your employer plan to contribute to your HSA. Note: The form asks to confirm your age because individuals 55 years old or older can add an additional $1,000 “catch-up” contribution to their HSA every tax year.
After completing each field, the calculator will automatically update the columns on the right to show you how much you can contribute for the rest of the year. It will also display your estimated tax savings.
If you became HSA-eligible during the middle of the year due to a job change or employer insurance change, use the “prorated” tab to calculate how much you can contribute to your HSA for the remaining year.
How much should you contribute to your HSA?
Now that you know how to find your maximum contribution limit, compare plans, and calculate your future balance, you’re probably wondering how much you should contribute to your HSA. To maximize or not to maximize? Good question.
When it comes to adding money to your HSA, a general rule of thumb is to consider reaching your maximum HSA contribution whenever possible. Unlike Flexible Spending Accounts (FSAs) which have a use-it-or-lose-it feature, HSA funds always rollover year after year and never expire. For that reason, the more money you save in your HSA, the more you’ll have for future medical costs. That’s true even if you change jobs, get new health insurance, or retire—you own your HSA.
If you’re not able to reach your maximum contributions this year, be sure to plan to contribute what you can so you can still enjoy some tax benefits. Any post-tax contributions you make can be deducted from your taxes at the end of the year, and you can earn tax-free interest in certain HSA plans, so even small contributions can go a long way.1
Remember: your HSA funds can be used to pay for your qualified medical expenses as well as those of your spouse and other tax dependents, even if they aren’t covered under your health plan. So, if someone in your household is expecting an upcoming health expense this year, think about working that into your HSA contribution plans.
Is there a time when you shouldn’t contribute to your HSA?
Rarely, a situation may arise where you may need to stop contributing to your HSA, regardless if you have hit your maximum. This typically only happens when the person who holds your account is no longer covered by an HSA-eligible health plan or receives other health coverage like Medicare, military health benefits, or are covered by a medical FSA. In order to contribute to an HSA and receive the tax benefits, accountholders can’t be claimed as a dependent on another person’s tax return.
If any of these changes occur, you will no longer be able to contribute to your HSA, but you will still be able to keep and use the funds already in your HSA. Learn more about contributing to your HSA here.
More HSA tools to bookmark
When it comes to making informed decisions about your savings, you can never have too many resources. Here are a few more of our most frequently used tools to help you make smart financial choices:
Future balance calculator: Curious how much your HSA funds have the potential to grow over time? Enter your current account balance, annual contributions and average expenses in the future balance calculator and it will provide an estimate of your total growth and tax savings over the next number of years. Calculate your balance here.
Plan comparison tool: Sometimes it’s difficult to know if an HSA-qualified health plan is right for you and your family. With our plan comparison tool, you can compare an HSA-qualified health plan to a traditional plan to see the potential benefits and savings. All you need to do is enter the right details, estimate your annual medical expenses, and then view the plans side-by-side. You can even save and email your personalized results. Start comparing plans.
Use the Help Center: Our HealthEquity Help Center is an excellent resource in finding answers to all your questions, from searching common topics to submitting a request with our support team. Everything you need to know about your account, how to submit a reimbursement claim, and how to spend your money on eligible healthcare items is available at the Help Center.
How to reduce your healthcare costs
You can save more by shopping around. Ask your health insurance carrier about in-network providers and whether they have any cost-estimation tools to compare providers and services. You can also compare prices for prescription medications, as those prices may vary in price from one pharmacy to the next. Use tools like RxSaver to look for the least expensive options for filling prescriptions.2
Many doctors are well-versed in considering both costs and the quality of care. Talk with your doctor about your financial healthcare goals so they can help you find more affordable options for your medical needs.
Retiring soon? Another reason to maximize
When you reach the age of 65, your HSA will begin to behave similarly to a 401(k). And by that we mean you’ll pay the usual income taxes on funds used for non-qualified expenses, but for any qualified medical, dental or vision expenses, that money remains tax-free. As healthcare expenses continue to rise in retirement, HSAs are an excellent investment strategy to help secure any future medical expenses.
Get those tax breaks dialed in
We touched on tax breaks a little bit when we talked about both the HSA contributions calculator and future balance calculator. But there’s even more to know. Not only does an HSA help ease the burden of higher out-of-pocket costs by allowing you to set aside money on a tax-free basis, but they’re also triple tax advantaged. This means that you can make contributions with pre-tax money (typically through payroll deduction), putting more of your paycheck back into your pocket. You can also contribute directly and claim your funds as a tax deduction. And you can even earn interest on your HSA balances—and every penny earned isn’t subject to tax. Not to mention, any HSA funds that rollover can accumulate and grow tax-free, year after year.
Tools to help you succeed
Planning your HSA doesn’t have to be overwhelming. With the right tools and resources, utilizing your HSA money can be easier than you think. Rely on the HSA contribution calculator to find your max for the current tax year, then make regular deposits to build your equity a little at a time. If you need help along the way, feel free to visit the HealthEquity Help Center for more resources. The sooner you can take control of your HSA, the sooner you can have peace of mind and financial security.
To learn more about HSAs, visit HealthEquity.com/HSAlearn.
1HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-deductible with very few exceptions. Please consult a tax advisor regarding your state’s specific rules.
2HealthEquity and RxSaver are separate, unaffiliated companies and are not responsible for each other’s policies or services.
HealthEquity does not provide legal, tax or financial advice. Always consult a professional when making life-changing decisions.
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