How to Make the Most of Your HSA

Written by Scott Benjamin

January 14, 2022

A Health Savings Account (HSA) is one of the most beneficial savings accounts offering investors very attractive tax benefits. The HSA’s flexibility and tax profile can generate substantial long-term savings. It can also ensure that you are able to financially handle a medical emergency or medical expenses in retirement. To get the full benefit of an HSA, you need to make the most of it. Continue reading to learn how.

Contribute Regularly

With an HSA, you can deposit pre-tax money for qualified medical expenses into your account. For 2022, the contribution limit is $3,650 for an individual and $7,300 for joint and head of household filers. If you are 55 years old or older, you are allowed a $1,000 catch-up contribution. Whether you are in good or poor health, you should be consistently contributing to your HSA if you are able to do so. Compared to a flexible spending account, the balance in your HSA will roll over to the next year so you do not lose your contributions if you do not spend it. All contributions to an HSA are tax deductible and all qualified withdrawals are not taxed.

Invest Your Funds

The funds inside of the HSA grow tax deferred and distribute tax free if used for qualified medical expenses. Investing your funds in a mutual fund or ETF portfolio can be a great decision for enhanced long term benefits if you do not need the funds in the near or intermediate term horizon. If your employer-sponsored HSA does not offer an attractive and comprehensive investment menu, you can transfer your HSA to another provider. You may have to pay a small fee, but it could be worth it in the long run.

Don’t Take Distributions Unless You Have To

You do not have to use your HSA funds to cover your current medical expenses. Your HSA can simply be used as a tax-advantaged savings vehicle for later or retiree medical expenses. By paying for your current medical expenses out of pocket without your HSA, your pretax contributions can compound tax free over time. Withdrawals from your HSA may be more beneficial in your retirement years when medical expenses are likely to be a higher percentage of your overall monthly budget expense.

With the rising costs of healthcare, it is smart to have a fund set up to help cover any medical expenses you may incur. No matter how healthy you are, you never know when a medical emergency may happen causing the medical bills to pile up.

Contact us at Firethorn Wealth if you want to learn more about how you might take advantage of a Health Savings Account. We will be able to help you create a plan to grow your HSA funds in a way that is beneficial for you and your family. Give us a call today to get started.