How to maximize HSA for medical expenses? Check out the tips

Tip for Maximizing HSA for Medical Expenses

If you’re looking for ways to save for medical expenses while still enjoying the tax benefits of a health plan, the Health Savings Account (HSA) could be your solution.

The HSA is a type of savings account geared towards medical costs and has been increasingly used by Americans, especially because it offers very advantageous tax benefits. But like any financial tool, to get the most out of it, it’s important to know how to use it in the smartest way.

Want to know more? In this guide, we’ll talk about how to maximize your HSA for medical expenses and make sure you’re not losing money.

What is an HSA?

First, it’s good to remember the basics. A Health Savings Account (HSA) is an individual savings account that allows you to save money for medical expenses without paying taxes on the funds you contribute to the account, as long as the money is used for qualified health expenses.

It’s one of the most efficient ways to finance your health, mainly because you can invest your account balance over time.

In addition, the HSA can be combined with a High Deductible Health Plan (HDHP), which can reduce the amount of your insurance premium. But how do you maximize this benefit?

1. Contribute as much as possible

One of the simplest ways to maximize your HSA is to make sure you’re contributing as much as possible every year. For 2024, the contribution limit is $3,850 for individuals and $7,750 for families.

If you’re 55 or older, you can add a $1,000 catch-up, which raises the limit to $4,850 or $8,750, respectively.

Why is this important? Because these contributions are deducted from your taxable income, which means you pay less tax.

2. Use the hsa for qualified expenses

The key to not missing out on HSA benefits is to make sure you use the funds in the account for qualified medical expenses. This includes everything from doctor’s appointments to prescription drugs, physical therapy and even dentist and eye doctor expenses.

And if you think your health expenses are limited to doctors and medicines, it’s worth remembering that other items are also covered, such as glucose monitoring devices, fertility treatments and even mental health services!

3. Let the balance grow with investments

One of the biggest differentiators of an HSA is that, as well as helping with your present medical expenses, it can also be an excellent tool for the future.

Unlike a traditional savings account, many HSAs offer investment options, allowing the balance to grow over time.

If you start investing your account balance and maintain a good strategy, the returns over the years can be considerable. For example, if you’re young and don’t need to use your account often, you can accumulate a significant amount that will be available when you’re older.

4. Use it for future medical costs

Not only is an HSA great for current medical expenses, but it can also serve as a health-focused retirement fund. This is useful if you’re in your 30s or 40s and can let the money grow over time.

And since accumulated funds have no expiration date, you can use them when you need them, whether for expensive treatments, surgery or even long-term care.

An important tip is that if you don’t need to use the HSA for medical expenses in a given year, you can let the funds grow until the following year.

5. Use it for post-retirement expenses

The interesting part of the HSA is that you can use the funds for medical costs after retirement too. After the age of 65, you can withdraw money from your HSA for any purpose without the 20% penalty, although if it’s not for medical expenses, you will pay taxes on the amount withdrawn.

The advantage here is that you have the flexibility to use the money as you see fit, without worrying about an absurd penalty.

6. Don’t leave it to the last minute

To maximize your HSA, plan ahead. Don’t wait until the end of the year to contribute. Increase your deposit consistently and, whenever possible, put in the maximum allowed. This will ensure that you are fully prepared for any medical expenses.

Conclusion

The HSA is one of the best tools available for anyone who wants to prepare for medical costs in a smart and tax-advantaged way. Make the most of the contributions, use the balance in the right way and let your money grow with investments.

Whether you’re using it now or thinking about retirement, the HSA is a powerful account for anyone who wants to optimize their healthcare spending. So if you’re not already maximizing your HSA, what are you waiting for? Get started today!

Written by

Juliana Raquel