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How to Get the Most Out of Your Health Savings Account (HSA)

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    David Botha

How to Get the Most Out of Your Health Savings Account (HSA)

The Health Savings Account (HSA) can seem complicated at first, but it’s a powerful tool for managing your healthcare expenses and even building long-term savings. Let’s break down how to make the most of your HSA, especially as we navigate the current healthcare landscape (April 2020).

What is a Health Savings Account (HSA)?

An HSA is a tax-advantaged savings account that’s specifically designed to be used with a High-Deductible Health Plan (HDHP). Unlike a traditional Flexible Spending Account (FSA), HSA funds roll over year after year.

Who is Eligible?

To be eligible for an HSA, you must:

  • Be covered by a qualifying HDHP. (The deductible is typically higher than a traditional health plan deductible).
  • Not be enrolled in another healthcare coverage (like Medicare Part B) that qualifies for a premium tax credit.
  • Not be a dependent of someone else’s HSA.

Understanding the Basics

  • Tax Advantages: This is the big one! Contributions are tax-deductible (or pre-tax if made through payroll deduction). Earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
  • Contribution Limits (2020): For 2020, the contribution limits are:
    • Individual: $3,550
    • Family: $7,100
  • Catch-Up Contributions: If you’re age 55 or older, you can contribute an extra $1,000 per year.
  • Money Must Be Used or it’s Lost: Unlike an FSA, you can’t roll over unused funds. This makes careful planning even more important.

How to Maximize Your HSA

Here's how to make your HSA work for you:

  1. Pay for Qualified Medical Expenses: The primary purpose of an HSA is to cover qualified medical expenses, including:

    • Doctor visits
    • Prescriptions
    • Dental care
    • Vision care
    • Over-the-counter medications (with a prescription or qualified purchase)
    • Medical equipment
    • Mental health services
    • And more – check the IRS website for a complete list.

  2. Invest Your HSA Funds: Many HSAs offer investment options, allowing you to grow your savings beyond just a cash account. Consider low-cost index funds or ETFs that align with your risk tolerance and long-term goals. The tax-free growth is a huge advantage!

  3. Planning for Future Healthcare Costs: Don't just treat your HSA as an expense account. Start saving aggressively for potential future healthcare needs, such as:

    • Major surgeries
    • Long-term care
    • Retirement healthcare

  4. Consider a Health Savings Investment Account (HSIA): These accounts combine the tax advantages of an HSA with the investment capabilities of a brokerage account. They allow you to invest in a wider range of assets and potentially diversify your portfolio.

Resources to Learn More: