Have a New HSA? Here's Your Do-It-Now List of Activities.

New to the world of Health Savings Accounts? Here's a step-by-step guide to optimize your experience.

You have a new Health Savings Account. Or you opened one previously but never spent much time thinking or learning about how the account works. Resolve to understand how to use your account this year, beginning today. It's a powerful financial ally. But like any other financial account, the benefits flow disproportionately to those who understand how to incorporate it optimally into their lives.

An investment of an hour or so this month, then five to 10 minutes per month the rest of the year is all it takes to understand how you can use your Health Savings Account to help you achieve your financial goals. This effort can lead to better health (you'll have funds to pay for high-value medical care) and better wealth (the tax benefits make the account the best way to reimburse your qualified medical, dental, vision, and over-the-counter expenses).

Here are the steps that you need to take, in the proper chronological order, to enjoy the full benefits of your Health Savings Account:

Set Goals

How do you want to use your account? There is no right or wrong answer, and you can change your mind as often as you like. But you may be more satisfied with your Health Savings Account if you understand what it can do for you and you set some goals about how you plan to use it.

Do you want to accrue a balance steadily to establish an emergency medical fund to pay high qualified expenses? If so, consider contributing more than your projected needs, adjust your payroll deductions upward if expenses exceed projections, or negotiate repayment terms with providers and pay your bills over time with future contributions to preserve balances.

Do you want to position your Health Savings Account as a retirement account? In that case, you may want to place your debit card in a bureau drawer and pay your qualified expenses with personal (after-tax) funds to preserve your balances. If so, keep your receipts. If you find yourself in a bind, you can reimburse those qualified expenses next month, next year, or decades from now.

Do you want to use your account like a Health FSA, reimbursing all qualified expenses as you incur them, without any intention of building a balance over time? That's a viable strategy, too. Project your expenses and set your payroll deductions accordingly. Periodically change your deductions to match your actual expenses. You'll receive the same tax benefits as you do when following any other strategy. You just won't have an emergency fund if you're suddenly prescribed Eliquis at $588 out-of-pocket for a month's supply.

Set Your Payroll Deductions

Yes, you change your pre-tax payroll deductions - start, stop, increase, or decrease - through your company's Cafeteria plan at any time. Your employer must offer you the option to make such changes prospectively on at least a monthly basis. You don't need to experience a qualifying life event, as you do with a Health FSA to change your annual election.

But it's a best practice to set a deduction level and try to stick to it, rather than fund your account as you incur expenses. Your Health Savings Account can be a tax-advantaged emergency savings account. You may want to build a balance so that you don't skimp on necessary care or find yourself tempted to tap other sources, like a workplace retirement account, that may generate tax consequences and penalties for early withdrawals.

You may be able to negotiate repayment terms with physicians, dentists, hospitals, and imaging centers so that you can receive appropriate high-value care promptly without funds to pay the bill in full. But purchases of prescription drugs and vision hardware must generally be paid in full at the time or purchase.

Check with your employer to determine how to set and change your elections. The process varies by employer.

Establish Your Online Account

You want to manage your account easily and instantly through your laptop or phone. Your Health Savings Account administrator should have sent information on how to open your online account. Once you do, you can probably (functionality varies by administrator) request reimbursement, contribute outside the Cafeteria Plan, check your balances, and change your investments.

Understand and Activate Your Debit Card

More than five of every six withdrawals from a Health Savings Account are done with the debit card. You can present it at the register to buy qualified prescription drugs and over-the-counter items at the point of purchase. You can write your card number on a provider bill that you receive after your insurer has processed the claim. You can register it as your card on file with an online pharmacy or virtual store selling HSA-qualified over-the-counter items.

Be sure you understand how your card is coded. An industry best practice is to limit acceptance to merchants that sell qualified services and goods. Think physicians, imaging centers, hospitals, optical shops, dentists, and pharmacies. This coding prevents you from inadvertently pulling out the wrong card at a gas station, restaurant, pool hall, or casino. Health FSA cards are coded this way.

You can withdraw funds for non-qualified expenses, subject to taxes and possible penalties. Your administrator must provide another means of distributing balances for these purposes. But it can limit the card to certain merchant codes.

If your card isn't merchant-coded, it will work anywhere. Be sure you understand the absence of guard rails and use the card appropriately.

Monitor Your Account at Least Monthly

A Health Savings Account is a financial account. And financial accounts are always vulnerable to fraud. Many of us log onto online banking frequently to check our balances, confirm deposits, and pay bills. If we're low utilizers of medical services, we may not view our Health Savings Account activity often. Many administrators send a monthly e-mail with a link to your online account and your electronic monthly statement. That's a good prompt to review your account for any suspicious activity.

Think about Investing

Fewer than 10% of Health Savings Account owners invest a portion of their balances. Why not more? Some administrators don't offer investment options. Most require account owners to keep a certain balance (often $1,000 to $2,000) in cash to pay current bills. And many owners, not understanding the distinction between Health Savings Accounts and Health FSAs, simply don't know that they can invest balances.

If you're consciously (or unconsciously, through low utilization of medical services) building Health Savings Accounts balances, you may want to explore the investment option. Most administrators pay very low interest rates, so your balances lose purchasing power over time as inflation exceeds interest paid.

Each administrator is different. Some offer a menu of two dozen to four dozen mutual funds, whereas others give account owners access to a brokerage account to trade most stocks and mutual funds. Many offer a sweep function that allows owners to predetermine their investment options and have each deposit automatically allocated to those funds. Some offer professional investment advice for an additional fee.

Don't be intimidated out of investing. This option allows you to accumulate funds over a long period of time to reimburse qualified expenses later in life, including in retirement. And unlike withdrawals from tax-deferred retirement accounts, distributions from a Health Savings Account for qualified expenses are always tax-free.

The Bottom Line

Your new Health Savings Account can deliver peace of mind, better health, and tax savings, both now and in the future. But it won't deliver any of these benefits by itself. You need to understand how to use your account to optimize your financial benefits.