How much money have you put into your health savings account recently? If the answer is “not much,” then you should put contributing to it at the top of your to-do list. As long as you are enrolled in a high-deductible health plan, you can put aside money on a pre-tax basis into your health savings account, or HSA, and withdraw these funds (also tax-free) to cover current and future medical expenses. The money you save also accrues tax-free interest! So the question isn’t should you be contributing to your HSA, the question is only how much.
First, You Must Qualify For An HSA
Not everyone qualifies for an HSA, so in order to be eligible for one, you must:
- Be covered under a qualified high-deductible health plan (HDHP). For 2020, a HDHP is a health insurance plan with a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage.
- Have a HDHP which meets the minimum deductible and the maximum out of pocket threshold for the year. For 2020, the out-of-pocket maximum for an HSA-qualified health plan cannot be more than $6,900 for self-only coverage or $13,800 for family coverage.
- Not be covered by any other medical plan.
- Not be enrolled in Medicare
- Not be claimed as a dependent on someone else’s tax return
- Not be enrolled in TRICARE or covered by medical benefits from the Veterans Administration
Max Out Your Contributions
The IRS places a limit on how much you can contribute to your HSA each year. In 2020, as an individual, you can put in up to $3,550, and if you have a family, you can contribute up to $7,100. If you can, you should try to max out your contribution to your HSA. The more you contribute, the more you can benefit from your HSA’s triple tax advantages:
- Pre-tax contributions
- Tax-free earnings
- Tax-free withdrawals
If you’re worried about contributing too much money to your HSA, and not using up all of the funds, you should know that whatever money you do not use at the end of the year rolls over to the next year and keeps growing. In addition, any interest earned from these investments is completely tax-free, so it makes sense to contribute as much as you can. But if you cannot afford to max out your HSA you can still reap the benefits.
If You Can’t Max Out…
When it is time to decide your yearly contribution, you have to take into account how much you think you will spend on medical expenses for the year. Consider that you are responsible for paying your deductible and other out-of-pocket expenses, so try to put as much of these costs as you can into your HSA.
For example, if you have a set deductible, put that amount into your HSA. Or, if you have prescriptions that you need to purchase on a monthly basis that cost $200, contribute $2,400 (a year’s cost of the medication) into your account. That way you can enjoy the tax advantages on the money that you need to spend on that prescription drug anyway.
Consider Your Age
While you should always consider putting as much money into your HSA as you can, it may not be as important to max out your contributions if you are young and healthy. In this case, you will have fewer health care expenses than someone who is older or who has a chronic condition. But when you’re approaching retirement age, the likelihood that you will need more money for medical costs is greater. It makes more sense in this case to put as much money as you can into your HSA so that you can build interest on it, and use it tax-free for your out-of-pocket medical expenses. Taking advantage of your HSA is another way to help save your money, as well as to have spending money for any medical costs that may come up throughout the year.
If you are enrolled in a high-deductible health insurance plan, you should absolutely be utilizing your HSA. Not only are you putting money into an account that accumulates interest, but you will also be able to use it without paying taxes on it. And, because accidents or medical emergencies can happen, having a health savings account is important for helping you prepare for the unexpected.
Have questions? Need some guidance? We can help! EZ.Insure understands that insurance can be confusing, but we can go over any questions that you have and help you make an informed decision. We will go over how it all works, let you know what plans are available in your region, and offer help on how much you should contribute to your HSA if you have a high-deductible plan. And we offer all of our services for free! To view our accurate quotes within minutes, simply enter your zip code in the bar above, or to speak to an agent, call 888-350-1890.