How to Maximize Your HSA

Boost your Health Savings Account (HSA) to shield yourself from large health care expenses

If you have a high-deductible health plan (HDHP), then an HSA is perfect for you. Set aside pretax income for qualified healthcare expenses, and use your funds tax-free. You can contribute money that is pre or post tax. Contributions up to the annual limit based on HDHP coverage level are excluded from taxable income. HSAs offer triple-tax advantages for account holders:

1. Contributions are tax-deductible
2. Interest earned is tax-deferred
3. HSA funds used for eligible medical expenses are tax-free

Plus, the special tax treatment of an HSA can help you prepare for retirement. Balances will increase as the account rolls over each year.

However, the IRS sets maximum contribution limits each year, and you should not save more money than the maximum. Before meeting the contribution limit, maximize your HSA with these tips for success.

Consolidate HSAs

Combine multiple accounts to help meet the minimum balance required to invest, so you can capitalize on investing and grow your healthcare savings. For example, if you have a separate account with a previous employer, consolidate the accounts to meet the threshold. Investment returns are tax-free, and your HSA will grow funds for the future. Growing future funds can be used for eligible medical expenses tax-free. If they are used for ineligible expenses, then are subject to taxes but no penalties after age 65.
Another benefit of consolidating is simplifying your account statements. Track one account easily.

Keep Your Receipts

During the year, collect receipts and Explanation of Benefits that contain healthcare expenses. While shopping for eligible health care expenses, you can use your HSA debit card to pay hassle-free. Scan your receipts with the HSA Central App receipt scanner to quickly display qualified expenses. If you forget your HSA debit card, you can use accumulated receipts to reimburse your account. While your HSA will not require receipts to be submitted, the IRS may require proof that HSA distributions were used for eligible medical expenses. You can use our HSA Scanner to keep these organized. Additionally, HSA accountholders can stash away receipts for out-of-pocket expenses. This will allow the balance of your HSA to grow over time, and you can reimburse yourself later for previous out-of-pocket eligible medical expenses. Medical expenses can be reimbursed all the way back to when the accountholder was originally eligible for the HSA.

“Last Month” Saving

This tip correlates with the maximum contribution amount for an HSA. If you’re eligible on December 1st, the last month of the taxpaying year, then you’re qualified to contribute up to this sum. However, if your Health Plan doesn’t take effect until after this deadline, only an amount that correlates with the eligible period can be added. With triple-tax advantage benefits, transfer up to the full amount without it being taxable income. It’s essential to remain eligible through this testing period otherwise you will pay a tax penalty.

Support Others

There are several options when it comes to supporting your loved ones with an HSA. Although there is no way to make a “joint” HSA with your significant other, you can name them as a spouse/dependent, and they can receive a debit card for the account. You can separately name your partner as a beneficiary, and this allows for your account to continue growing if you were to pass away. However, naming your child as a beneficiary turns the account into taxable income.
Another option includes helping your children maximize their contributions in their HSA accounts. This addition is tax-free and is considered a gift. Gifted income may have tax implications, so it’s important to consider gift thresholds. Consider helping your loved ones reach the investment threshold.

Pay Until Tax Day

Although the year ends on December 31st, your contributions can continue until Tax Day for the previous year. If you weren’t able to fully fund the HSA, continue setting aside money until Tax Day, usually April 15th of the next year. This is a perfect way to ensure you maximize the money in your account.

Opening an HSA can help you prepare for endless possibilities. Utilize these tips to fully maximize your account balance. Please contact your professional tax advisor if you have questions about maximizing your HSA.