1. What is an HSA?
  2. How to Qualify to Contribute to an HSA
  3. How Much Should You Contribute to an HSA?
  4. How and When to Use Your HSA Funds
  5. HSAs, FSAs and Limited-Purpose FSAs
  6. HSA Strategies for Different Life Stages
  7. Using Your HSA as a Retirement Savings Tool
  8. The Bottom Line

You can only contribute a limited amount to your HSA each year. The government decides how much, and for 2018, the limit is $3,450 for singles and $6,900 for families.  If you and your spouse are 55 or older, you each can contribute an extra $1,000, for a maximum of $4,450 for singles and $8,900 for families. 

Why Contribute the Maximum

If you can afford to contribute the maximum, it’s a good idea to do so for several reasons. First, your contributions roll over from year to year, so if you end up having low medical expenses for the year and don’t spend all of your HSA contributions, you don’t lose them. They’ll be available to you in a future year when you might have higher medical expenses.

Second, you can take your HSA with you if you change jobs, so you don’t have to worry about losing your balance if you quit or get laid off or fired. And if you do find yourself between jobs and without health insurance, or paying expensive COBRA premiums, your HSA can help you afford your healthcare during that transition.

Third, the more you contribute, the more your HSA balance can grow when you put it in an interest-bearing account or invest it, and any gains you earn aren’t taxed. This tax-free growth creates a snowball effect that helps your HSA balance increase faster than other types of savings and investments.

Can’t Afford That Much?

The next best thing is to contribute at least as much to your HSA as the amount of your deductible. That way, you know you’ll be able to cover your medical expenses for the year before your coinsurance kicks in, and you’ll be paying for those expenses with pre-tax dollars.

If you’re in the 25% federal tax bracket and you contribute $2,000 to your HSA to cover your $2,000 deductible and you do, in fact, have $2,000 or more in medical expenses, you’ll save 25% of $2,000, or $500. Compare that to the case of not contributing anything to your HSA and paying all the expenses under your deductible from after-tax dollars.

You should also contribute less than the maximum if there’s a strong chance you will need the money for something that isn’t a qualified medical expense. If you think this will happen, set aside that money in your savings account instead of putting it in your HSA. If you don’t, and you have to withdraw the money from your HSA to pay for, say, car repairs, you’ll pay a penalty of 20%.  And if you made the contribution with pre-tax dollars, you’ll also pay income tax on it. 

Only contribute what you can afford to your HSA. It doesn’t make sense to pay penalties – or to have lots of money in your HSA – but have to go into credit card debt to cover a nonmedical expense.

An Alternate Strategy

Another tactic is to estimate what your medical expenses will be for the year, then contribute that amount to your HSA. If you’re healthy and don’t take any prescription drugs, but you know that last year you went to the dermatologist, the eye doctor and the dentist, call those providers and ask what you can expect to pay for your visits in the upcoming year, then set that amount aside in your HSA.

Next, let’s look at how and when you should use the money you decide to put in your HSA.


How and When to Use Your HSA Funds
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