A health savings account (HSA) provides excellent opportunities to put aside cash for medical expenses, and the best part is that HSA funds are largely tax-free. This means you can keep more of your hard-earned money and spend it on the healthcare needs that matter most to you.
For many people, contributions to an HSA are made through paycheck deductions alongside contributions from an employer. If you’re only putting in the bare minimum each month into your HSA, you could be missing out on some big benefits.
This is Tax-Free Money
The biggest reason to max out your HSA is that, once again, this money is tax-free. Essentially, you are keeping more of the money you’ve earned just for setting it aside for healthcare expenses. This can also offset deductible costs for health insurance plans. While you can’t use HSA funds to pay for insurance premiums in most cases, you can use these funds for some everyday medical expenses like prescriptions and even over-the-counter medical products.
It should be noted that HSA transactions are subject to audit, so be careful about staying within the guidelines provided by the Internal Revenue Service (IRS). Attempting to spend HSA funds outside of accepted guidelines can lead to fines and fees.
Strategies to Max Out Your HSA
If you want to know how to maximize your HSA funding, most strategies involve upping your contributions to meet the maximum threshold set by the IRS. For single tax filers, this amount is $3,650 per year. For families, this amount jumps to $7,300 annually. Contributing to the max ensures that you are getting the most from your HSA dollars.
Additionally, people who want to know how to maximize your HSA funding can look into employer contributions as a lump sum. This can be a double-edged sword, so watch out. If you accept a lump sum from your employer at the beginning of the year, you receive more cash to spend now; however, if you leave the company before the end of the year, you may be liable for unearned funding. It would be smart to talk with your HR department to find out your obligations regarding HSA funds and timing.
Author Resource:-
Daniel Stewart has been helping people with their money management and personal finance with over 15 years’ experience in business finance. You can find his thoughts at health investment blog.
