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How to get the most out of your health savings account

By Published On: December 18, 20205.4 min read

Brian Hutchin  | 

December 18, 2020  | 

Reading Time: 5 minutes

How to get the most out of your health savings account

An HSA is a tax-advantaged1 account that an individual can use to pay for qualified medical expenses, long-term care expenses or invest and save for retirement. These accounts have a triple tax advantage1, meaning you can contribute pre-tax1, your money grows free of taxes and when you take the money out, you aren’t taxed on your gains.

HSAs continue to be a great savings vehicle. Mid-year reports show that HSAs have had record growth and the Devenir’s HSA survey‡ showed that despite our current environment, HSA investment assets continued to grow to an estimated $17.6 billion at the end of June 2020— up 32% from the previous year. This shows that HSAs continue to be a powerful tool in helping offset rising healthcare prices, and as they gain popularity, it’s important that people are educated about what this account can uniquely offer individuals.

How UMB accountholders act

HSAs are a smart tool that can help you prepare for your future healthcare expenses and manage your day-to-day medical costs at the same time. Some people use their HSAs to pay current healthcare bills, while others prefer to save the funds for future needs. Because funds in your HSA never expire, you have the opportunity to build your balance over time. To get a better idea of how to get the most out of these accounts, it’s important to take a look at how accountholders are acting.

UMB was able to analyze the behavior of its more than 1 million active HSA holders during 2019. We found that spenders represent the largest portion of accounts, followed closely by savers. On average, UMB accountholders have had their accounts open for more than 3 ½ years, funded accounts have an average account balance of $1,996 and have received a $543 annual employer contribution.

Why and how are people spending their HSA dollars

At UMB, accountholders who are in the spender, maximizer or investor category have had their accounts open for an average of 10 years, longer than other account segments such as savers. Although being a spender means that you spend more than you save in your account, it’s important to know that most spenders’ distributions were less than $1,000 a year, so spending was minimal. People spend their HSA dollars for various qualified medical expense reasons including going to the doctor or dentist, prescriptions, medical equipment and supplies. You can also use the funds to reimburse yourself for any qualified medical expenses that your insurance did not cover, and you had to pay out of pocket.

How spenders can transition to savers

While it is nice to pay for medical bills now out of your HSA, if your budget allows, you can also think more long-term. As you get older, you usually incur higher healthcare costs. Saving more of your money now could mean being better prepared for when you might need it in later years. Here are some steps to make the most of your HSAs long-term savings benefits.

Start your balance: Establish your monthly savings amount

When you first open your HSA, take a moment to decide how much you want to contribute yearly and divide that up between your paychecks. Remember, this money is pre-tax. UMB’s Maximum Contribution Calculator can help you determine your annual contribution limit so you know the most you can set aside each year. If you’re not able to save the maximum amount, consider setting aside an amount equal to your insurance deductible, or an amount that works with your budget. No matter the amount, it’s most important to start saving today and make it a priority to save a little each month.

Understand tax benefits: Take advantage of pre-tax dollars1

Money going into your account will be direct deposited from each paycheck or scheduled at the frequency you choose. This ‘out of sight, out of mind’ mentality can help you take advantage of pre-tax1 dollars before your paycheck hits your bank account.

Build your balance over time: Aim for the maximum

Try to pump up your payroll deduction amount each year, even a small increase adds up over time. For example, if you increase your HSA savings by just $20 per pay period, that is an additional $480 a year. A good rule of thumb is to increase your contribution whenever you receive a pay raise, either by a percentage or a flat dollar amount.

Preserve your balance: Research and reduce costs

It’s important to know your healthcare costs. Do your own research and explore opportunities for discounts by asking questions of your providers and negotiating cost reductions, such as paying in advance, paying cash or creating a payment plan.

Grow your balance: Invest your HSA2

When your UMB HSA deposit account balance is more than $1,000, you can invest some of your HSA money. Investing your HSA can help you reach your savings goals quicker if your investments perform well over time, and the money you earn by investing your HSA is tax-free.2 The Devenir study showed that about 1.5 million accounts are investing a portion of their HSA dollars.

By increasing your HSA balance over time, you will benefit from a larger savings pool when you retire. But regardless of what age you start, opening on HSA has many benefits and is a great way to pay for healthcare costs now as well as save for the future.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

1All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with each state’s tax laws to determine the tax treatment of HSA contributions or consult your tax adviser. Neither UMB Bank n.a., nor its parent, subsidiaries, or affiliates are engaged in rendering tax or legal advice. Withdrawals for non-qualified expenses are subject to income taxes and a possible additional 20% penalty, if you’re under age 65.


2Investments in securities through an HSA investment account are:

Not FDIC-Insured · May Lose Value · No Bank Guarantee

Funds in an HSA Deposit Account are held at UMB Bank, n.a., Member FDIC.


By |2023-07-21T16:50:48-05:00December 18, 2020|Categories: Personal|Tags: , , , |

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About the Author:

Brian Hutchin serves as executive vice president and director of Healthcare Services at UMB Bank.
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