A health savings account can have a load of benefits for those with a qualifying high-deductible health insurance plan. Not only can it help you save on taxes, but it can double as an investment account. But if you want to get the most out of your HSA, make sure you're doing these three things.
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1. Contribute through payroll
Your employer may contribute to your HSA, but you might still want to add funds on top of that. The total contribution limit for 2022 is $3,650 for individuals and $7,300 for families.
If your healthcare plan is HSA-eligible, you can always make contributions directly from your bank account to an HSA account, up to that limit. But contributing through your payroll can save you some extra money on taxes.
Specifically, HSA contributions aren't subject to Social Security and Medicare taxes. The employee portion of those taxes could be as much as 7.65%. So, you'll save $76.50 for each $1,000 you contribute to your HSA through payroll.
However, you should know that contributing through your payroll could reduce your wages eligible for Social Security. That will reduce your social security benefits ever so slightly. But you get greater control over that money today in exchange.
2. Move your funds to an account you like
Your workplace probably has a default HSA service provider that it forces you to use if you make contributions directly through your payroll. That default may not have the best fee structure, investment options, or user interface. If you're unhappy, though, you can change things.
Unlike a 401(k) plan, you're fully in control of an HSA once the funds are in the account. That means you can transfer the account to a different service provider with no fees and plenty of investment options. Personally, I like Fidelity.
The easiest way to move your HSA to a new service provider is with an HSA transfer. Open up a new HSA account with your service provider of choice (or log in to an existing account) and initiate a transfer from your workplace's account. You may get charged a fee for the transfer, but your new provider may be willing to cover it if you ask.
The other option is a rollover. With a rollover, your workplace HSA service provider will liquidate any investments and send a check to you. You need to fill out a rollover form with your new provider and deposit the funds within 60 days.
3. Save for retirement
The core benefit of an HSA is you can withdraw funds tax-free for qualifying medical expenses. Many providers offer a debit card linked to the account that you can use to pay for doctor's visits and other expenses directly. But you could also pay out of pocket and submit your receipts to reimburse yourself later.
Later could be next month when the credit card bill is due, or it could be 40 years from now.
One of the best ways to use your HSA is to save and invest in it today, pay out of pocket for medical expenses, and then withdraw funds in retirement. If you save your receipts (make digital copies), you can have a completely tax-free nest egg. If you need the money now, though, use it.
If you don't have enough medical expenses to cover your desired withdrawal in retirement, you can treat the HSA like a traditional IRA once you reach age 65. You'll pay income tax on the withdrawal, but there won't be any tax penalty at that point. That makes an HSA one of the most versatile and tax-advantaged accounts you can use for retirement.
If you're not already making the most of your HSA, follow the above steps to get more out of it.
