Health savings accounts, also known as HSAs, are one of the most valuable savings accounts you could have. When utilized properly, an HSA can help you with an unexpected medical bill, handling medical expenses in retirement, and saving money on taxes. However, many people are not taking advantage of these opportunities. Continue reading to learn how to make the most of your HSA.
What makes health savings accounts so valuable are the tax savings. With HSAs, you can save on taxes in three different ways:
- Tax deductions on contributions
- Tax-free growth of funds
- Tax-free withdrawals for qualified medical expenses
To make the most of these tax savings, you must maximize the use of your HSA strategically.
Contribute Each Year
You are limited in your HSA contributions each year. For 2022, the contribution limit is $3,650 for an individual health care plan and $7,300 for a family health care plan. You should aim to contribute as much as you can. Unlike flexible spending accounts, your HSA balance rolls over each year. Even if you are incurring out-of-pocket medical expenses, you should be contributing to an HSA.
Invest Your HSA Funds
While your HSA funds grow inside the account over time, you can maximize your money by investing. Keeping your funds as cash is great to cover any expenses but if you are utilizing your HSA to save for retirement medical expenses, investing is the way to go. If your employer-sponsored HSA does not provide great investing options, you are able to transfer your account to a different brokerage that does have investment options that work for you.
Don’t Touch Your HSA
While an HSA is meant for out-of-pocket medical expenses, the best way to utilize the savings is to not touch it. With the tax advantages, you should consider using your HSA to save for retirement health care expenses. As you get older, you will inevitably have higher medical costs. By contributing each year and not touching it, you are allowing your contributions to grow over time and ensuring that you will receive the tax benefits on both the contribution and the distribution.
Utilizing The Catch-Up Contribution
Once you reach age 55, you will be able to take advantage of the $1,000 annual catch-up contribution. This allows you to save even more in the last few years you have worked prior to retirement. If you have not been on track with your HSA savings, now is your chance to improve.
The closer you get to retirement, the more important it is to maximize your HSA. If you need assistance taking advantage of the different opportunities you have with your health savings, our advisors at Curo Private Wealth are here to help. Schedule a consultation with us today to get started.