Health Savings Accounts (HSA) are a popular way for people to save money for their healthcare expenses while also taking advantage of tax benefits. You can contribute pre-tax dollars to your HSA, which means you can lower your taxable income and save more money in the long run. However, not everyone is familiar with how to make the most out of their HSA. Here are some tips and tricks to help you maximize your HSA.
1. Contribute the maximum amount allowed
The IRS sets contribution limits on HSAs each year. In 2021, the maximum amount you can contribute to your HSA is $3,600 for an individual and $7,200 for a family. Contributions made by your employer count towards the limit. Contributing the maximum allowed not only helps ensure you have enough money to cover your medical expenses but also maximizes your tax savings.
2. Use your HSA for eligible medical expenses
HSAs can be used to pay for eligible medical expenses, including deductibles, copayments, and prescriptions. You can use your HSA for expenses that are not covered by your health insurance, like vision and dental care, glasses and contacts, and over-the-counter medications. However, it’s important to note that you can’t use your HSA for expenses that are not considered qualified medical expenses.
3. Invest your HSA balance
Many HSAs allow you to invest your balance in a variety of investment options, including mutual funds, stocks, and bonds. Investing your HSA balance can help you grow your savings over time and potentially earn more money than you would with a traditional savings account. Be sure to research your investment options and understand the risks before making any investment decisions.
4. Keep receipts and track your expenses
It’s important to keep receipts and track your medical expenses so you can ensure you’re using your HSA for eligible expenses. You’ll need to report any withdrawals you make from your HSA on your taxes, so keeping good records will help you avoid any confusion or errors. Additionally, keeping receipts can help you in case of an audit.
5. Make catch-up contributions
If you’re over the age of 55, you can make catch-up contributions to your HSA. In 2021, you can contribute an additional $1,000 to your HSA. These catch-up contributions can help ensure you’re saving enough for your healthcare expenses as you near retirement.
In conclusion, HSAs are a valuable tool for saving money and reducing your tax liability. By maximizing your contributions, using your HSA for eligible medical expenses, investing your balance, keeping receipts, and making catch-up contributions, you can make the most out of your HSA and plan for your healthcare expenses in the future.
