How to use your HSA
I have to be honest and say I’ve not been taking advantage of our HSA account. It was always in the back of my mind, but I didn’t take the time to set it up until recently. So, let me save you some time and provide you with easy steps and an understanding of the benefits of using your HSA to save.
Utilizing a Health Savings Account (HSA) as a tool to save and build wealth can be a smart financial strategy due to its tax advantages and potential for long-term growth.
Here is a guide on how to effectively use your HSA for saving and building wealth:
Understand the Basics of an HSA:
- An HSA is a tax-advantaged savings account for individuals enrolled in a high-deductible health plan (HDHP).
- Contributions to an HSA are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.
The funds in an HSA roll over from year to year and are portable, meaning they stay with you even if you change jobs or health plans.
Maximize Contributions:
Contribute the maximum allowed amount to your HSA each year. As of 2024, the annual contribution limit for an individual is $3,250, and for a family, it is $6,550.
If possible, try to contribute the maximum amount allowed to fully take advantage of the tax benefits and savings potential.
Invest Your HSA Funds:
- Once your HSA balance reaches a certain threshold (often around $1,000), consider investing a portion of your funds in mutual funds, stocks, or other investment options offered by your HSA provider.
By investing your HSA funds, you can enjoy potential growth and higher returns over time, which can help you build wealth.
Save Receipts for Reimbursements:
- Pay for your medical expenses with funds outside your HSA and save the receipts.
- There is no time limit on when you can reimburse yourself from your HSA for qualified medical expenses, so you can let your HSA funds grow through investments and reimburse yourself in the future.
Use Your HSA as a Retirement Savings Vehicle:
- Once you turn 65, you can withdraw funds from your HSA for non-medical expenses without a penalty (though you will pay income tax on the withdrawals).
Consider using your HSA as a supplement to your retirement savings. You can use the funds for living expenses in retirement while still benefiting from the tax advantages.
Regularly Review and Monitor Your HSA:
- Keep track of your HSA contributions, investment performance, and qualified medical expenses.
- Periodically review your investment choices and adjust as needed to align with your financial goals.
If you’d like to learn more about opening an HSA, please read this article.
By following these guidelines and utilizing your HSA strategically, you can take advantage of its tax benefits and potential for growth to save and build wealth over the long term.
As always, this is my personal experience. Remember to consult a financial advisor or tax professional for personalized advice and guidance tailored to your financial situation.
