Reviewing your healthcare spending and saving strategy can help you gain financial confidence in the coming year. With the effects of the pandemic continuing to impact finances, using a health savings account to offset current or future healthcare expenses is more important than ever. Read on to learn how you can get the most out of your health savings account with these tips.
Empower your financial decisions by learning exactly what happens when you invest in your health savings account. With a health savings account, the money an accountholder puts into the account can grow over time to be used for future medical expenses. Health savings accounts have a triple tax advantage:
- Money goes into the account tax-free
- Money earns tax-free interest
- Investment earnings and money can be withdrawn tax-free, when used for eligible expenses
In addition, health savings accounts allow you to pay for medical costs throughout the year, whether they are planned or unplanned.
Bolster your retirement savings with a health savings account (HSA) by avoiding withdraws from your HSA until your golden years. With the money given the opportunity to grow long-term, you can use an HSA in a similar way to other retirement accounts. In 2023, an individual with an HDHP can contribute up to $3,850 to their HSA. In addition, for family coverage, the contribution limit increased from 2022 to $7,750.
HSAs also allow accountholders to make catch-up contributions if they are 55 or older. This opportunity to save money on a tax-free basis make HSAs a solid complement to a 401(k) and/or IRA when looking at future savings. HSAs can play a crucial role in increasing retirees’ confidence to prepare and save for future medical expenses, so HSAs shouldn’t be overlooked when planning for retirement.
While your HSA dollars can be saved and invested, you can also weather financial difficulties by purchasing health-related items using your HSA dollars including COVID-19 protective gear such as masks and hand sanitizer and home tests. Additionally, over-the-counter (OTC) medications, including non-prescription pain relievers and cold/flu medications, may now be purchased without a prescription. Generally, your HSA dollars can’t be used to pay monthly health insurance premiums – however, if you are collecting unemployment insurance or are paying for healthcare yourself (COBRA) while you are unemployed, you can use your HSA to do so. Consult your tax advisor for additional information.
Some people use their HSAs to pay current healthcare bills, while others prefer to save the funds for future needs. Because funds in an HSA never expire, and you can withdraw funds in a future year for expenses incurred now, the HSA balance can build over time. To get a better idea of how to get the most out of these accounts, it’s a good idea to look at how other accountholders are acting.
- Spenders: These individuals spend their HSA dollars on health expenses as they are incurred throughout the year.
- Savers: These individuals put money into their HSAs and don’t use their funds for current expenses. Instead, they pay for the medical expenses with other accounts, with the goal of saving their HSA funds for later. By depositing money into an HSA and investing a portion of these funds, there is a potential to grow the HSA account balance over time. As you age, your health needs—and expenses—increase, which makes saving and investing in an HSA, a shrewd move.
Ready to optimize your HSA account? Start by checking your account to see if you reached your maximum contribution for 2021. You have until April 15 to contribute to your HSA each year. From there, you can review your expenses from the previous year to better estimate your typical annual costs.
Try to think of any upcoming health needs you may have, including upcoming surgeries, pregnancies or ongoing prescriptions. Those out-of-pocket expenses should be the minimum you save in your HSA but consider contributing more than that each year. If you are contributing to your HSA through payroll deduction, check with your employer to find out how you can increase the amount going into your HSA mid-year.
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