Hsa how much should i contribute

High-deductible health insurance plans normally require lower monthly health insurance premiums, set limits on out-of-pocket maximums, and charge higher-than-usual annual deductibles. Unfortunately since HSA tax benefits are obviously a great deal for account holders , the IRS sets annual contribution limits for health savings accounts.

In general terms, it makes sense to always contribute the annual maximum to your health savings account, since any unused balance can be invested, grows tax-free, and can be rolled over at the end of the year.

Those with plenty of money to spare should max out HSA contributions every year. If you have to set priorities, here's how to decide how much to put into your health savings account. That argues for funding IRAs or other retirement accounts first. So it makes sense later in life to put away as much money as possible in your HSA, since it can always be withdrawn tax-free for qualified health medical expenses.

A health savings account is one of the best investment vehicles available for retirement, and it makes sense to take full advantage of it when you can. As with any investment with a beneficiary, however, you should revisit your designations from time to time because death, divorce, or other life changes may alter your choices.

Your plan administrator will have a designation-of-beneficiary form you can fill out to formalize your choice. Funds captured in an HSA can help out with such skyrocketing costs.

Qualified payments for which tax-free HSA withdrawals can be made include:. You can also use your HSA balance to pay for in-home nursing care, retirement community fees for lifetime care, long-term care services, nursing home fees, and meals and lodging that are necessary while obtaining medical care away from home.

You can even use your HSA for modifications, such as ramps, grab bars, and handrails, that make your home easier to use as you age. One strategy might be to bunch qualified medical costs into a single year and tap the HSA for tax-free funds to pay them, compared with withdrawing from other retirement accounts that would trigger taxable income. Also, note that there are limitations on how much you can pay tax-free for long-term care insurance based on your age.

With an HSA you are not required to take a distribution to reimburse yourself in the same year you incur a particular medical expense. So keep your receipts for all healthcare expenses you pay out of pocket after you establish your HSA.

If in your later years, you find yourself with more money in your HSA than you know what to do with, you can use your HSA balance to reimburse yourself for those earlier expenses. The strategies described in this article are based on federal tax law. Most states follow federal tax law when it comes to HSAs, but yours may not. As of the tax year, California taxes HSA contributions. The taxation of these plans could change in the future at either the state or federal levels. The plans could even be eliminated altogether, but if that happens, we would likely see the existing account holders exempted , as was the case with Archer MSAs.

A health savings account, available to consumers who choose a high-deductible health plan, has been largely overlooked as an investment tool, but with its triple tax advantage, it provides an excellent way to save, invest, and take distributions without paying taxes.

Of course, you can't let the savings tail wag the medical dog. Hoarding your HSA monies rather than attending to your health is not recommended. Internal Revenue Service. Accessed Nov. Employee Benefit Research Institute. Kaiser Family Foundation. The Wall Street Journal. Social Security Administration. Wisconsin Department of Employee Trust Funds. Business Wire. State of California Employment Development Department.

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If you think you could have health care expenses beyond your deductible, try to bump up your contribution to include that amount if you can. Try our HSA calculator using your own numbers to see the impact to your account over time. Planning with your HSA today can help you be prepared for your health care needs tomorrow.

Here are some additional considerations to help you strategize how to use your HSA over the long term. Keep some in cash, invest the rest.

Take advantage of the opportunity for federal tax-free earning potential by saving and investing your HSA funds. You can set up your investment account at any time. Start by defining your investment threshold, the minimum amount you need in your account before being able to invest, then when your account reaches that level funds will automatically transfer between cash and investments.

You can always make adjustments to your contributions and investment mix to meet your needs. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle.

Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than original cost. Be realistic about what you will need in retirement. Keep this number in mind as an overall savings goal as you manage your HSA each year. Keep going, keep saving. Life happens, needs change and goals evolve. However you can be prepared by continuing to contribute to your HSA — and consider increasing your contribution amount to help you prepare for future qualified health care expenses.

Any interest or earnings on the assets in the account are tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. We recommend you contact qualified tax or legal counsel before establishing an HSA.