For example, some plans might match contributions up to 6% of your pay, so in this case, you'd want to contribute a minimum of 6%—you don't want to miss out on employer matching contributions. Next, contribute up to the maximum amount for your HSA, due to the triple tax advantages.
You should receive Form 5498-SA from the trustee of your HSA. This form will show your contribution amount. You'll need to contact the trustee of your HSA if you cannot find this form.
Assuming you already decided the HSA eligible plan is the best insurance choice, contribute as much as you can. Ideally this would be the maximum of $3850 for next year (minus employer contribution if any).
How can you lower your taxable income with an HSA? Contributions to your HSA are tax-deductible, and the funds are tax-free when used for qualified medical expenses. For example, if you contribute $2,000 annually to your HSA and your base salary is $30,000- you will only be taxed on $28,000 come tax season.
Drawbacks of HSAs include tax penalties for nonmedical expenses before age 65, and contributions made to the HSA within six months of applying for Social Security benefits may be subject to penalties. HSAs have fewer limitations and more tax advantages than flexible spending accounts (FSAs).
The Last Month Rule
There is a testing period of twelve months. This means you must stay eligible through the end of the next year, or else you will face taxes and penalties.
First off, most experts would recommend maxing out HSA contributions before maxing out 401(k) contributions because of the tax advantages that come with the HSA. There's no minimum age for HSA fund distributions, so when you need it to spend money on health care, it's got your back.
If you're unsure of where to start, try working with a financial advisor. What Is the Average HSA Balance By Age? The average HSA balance for a family is about $7,500 and for individuals it is about $4,300. This average jumps up to $12,000 for families who invest in HSAs.
What happens if I contribute more than the IRS annual maximum? If your HSA contains excess or ineligible contributions you will generally owe the IRS a 6% excess-contribution penalty tax for each year that the excess contribution remains in your HSA.
Contribute at least the amount of your deductible
You'll be responsible for paying for health care expenses out of pocket until your annual deductible is met, so consider contributing at least the amount of your deductible to your HSA.
Calculating contribution limits.
To calculate your personal contribution limit: 1 Take the total annual contribution limit based on your coverage type (individual or family). 2 Divide that amount by 12. 3 Multiply it by the number of months that you qualify that year.
Plan for present-day expenses If you have relatively consistent medical costs from year to year, look over past bills, prescription costs, and other health expenses to determine your typical health care spending. Aim to set aside at least that amount in your HSA each year and enjoy the benefits.
But either way, your HSA custodian will have your back. They'll send you Form 5498-SA, showing how much you contributed to your HSA. And if you made any withdrawals, they'll also send you Form 1099-SA, showing the amount of the withdrawals. So there you have it.
Try to invest as much of your HSA money as possible while ensuring that you keep enough cash to cover your qualified medical expenses. Consider where your other retirement plans are invested as well to make sure that your HSA investments provide diversification. Avoid taking out funds from your HSA as much as possible.
Health Savings Accounts offer a triple-tax advantage* – deposits are tax-deductible, growth is tax-deferred, and spending is tax-free. All contributions to your HSA are tax-deducible, or if made through payroll deductions, are pre-tax which lowers your overall taxable income.
The short answer: As much as you're able to (within IRS contribution limits), if that's financially viable. If you're covered by an HSA-eligible health plan (or high-deductible health plan), the IRS allows you to put as much as $4,150 per year (in 2024) into your health savings account (HSA).
Unlike many flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), unused HSA funds automatically carry over to the following year. Even if your employer provided the account and made contributions, the account belongs to you — so any remaining funds are carried over every year.
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
An HSA also allows you more flexibility because you take withdrawals now (for qualified medical expenses) and during retirement. Roth IRAs offer tax-free growth. However, the contributions are taxable. But you can take out your contributions anytime without taxes or penalties.
Can I change my contribution amount during the year? Yes. You can change your contribution to your HSA at any time, but no more than once a month. To change your pretax payroll deduction amount, contact your employer.
The money you contribute to your HSA is non-taxable, just like it is if you contribute to a traditional 401k, IRA or other interest-bearing account. When you contribute money to an HSA, it decreases your adjusted gross income (AGI) which determines your taxable income.
If you can receive benefits before that deductible is met, you aren't an eligible individual. Other employee health plans. An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses can't generally make contributions to an HSA. FSAs and HRAs are discussed later.
Will my HSA account remain open if I have a $0 balance? The account will remain open if you have a $0 balance.
If you don't use it for qualified medical expenses, it counts as income when you file your taxes. Six months before you retire or get Medicare benefits, you must stop contributing to your HSA. But, you can use money left in your HSA to help pay for qualified medical expenses that Medicare doesn't cover.