You don't necessarily have to max it out but having a balance that matches or even exceeds your annual deductible is pretty nice to have in your back pocket. Having your medical emergency costs covered gives your cash savings one less thing to account for.
Once you get the full company match, it is better to max out the HSA than the 401K. HSA is tax free money (unless you somehow live your life with no medical expenses). 401K is only tax deferred.
The amount of money you should have in your HSA during retirement depends on your healthcare needs and circumstances. According to the Fidelity Retiree Health Care Cost Estimate, a single person who is age 65 in 2023 should aim to have about $157,000 saved (after tax) for healthcare expenses during retirement.
HDHP is great for young, healthy, and single people who are able to funnel excess cash into an HSA for its tax advantages. The high deductible means that you'll be basically uncovered for most ``standard'' health care outside of a yearly physical, but theoretically you have money in the HSA to cover such expenses.
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.
What happens if I contribute to my HSA more than the maximum annual limit that the IRS allows? HSA contributions in excess of the IRS annual contribution limits ($3,600 for individual coverage and $7,200 for family coverage for 2021) are not tax deductible and are generally subject to a 6% excise tax.
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
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).
Is It Better to Max Out an HSA or a Roth IRA? If you have to choose, prioritize the HSA for its triple tax benefits, especially if you anticipate significant healthcare costs in retirement. However, if you expect higher taxes in the future, a Roth IRA could be more advantageous.
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. Here's a breakdown of the average HSA balance by age.
How you use your HSA really depends on your health care needs and longer‑term goals. It's all about balance: Spend when you need to and save as much as you can to take advantage of the benefits of your HSA that can help you be ready for the future.
So if you're scrambling to find some last-minute tax breaks, maxing out your HSA can be a big help. The best part is, you don't have to itemize to claim the deduction.
The triple-tax-free aspect of an HSA makes it better for tax management than a 401(k). However, since HSA withdrawals can only be used for healthcare costs, the 401(k) is a more flexible retirement savings tool. The fact that an HSA has no RMD gives it more flexibility than a 401(k).
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.
Gym memberships. While some companies and private insurers may offer discounts on gym memberships, you generally can't use your FSA or HSA account to pay for gym or health club memberships. An exception to that rule would be if your doctor deems fitness medically necessary for your recovery or treatment.
Both FSA and HSA pre-tax health accounts can be used to pay for prescription glasses, contact lenses, eye exams and more. Eyewear that corrects your vision is considered a medical product, which means you can use your health plans to help cover the cost.
Yes! Thanks to the CARES Act, tampons are now considered a “medical expense.” That means you can use pre-tax income to pay for them through your HSA. More questions about tampons?
Sacrificing other financial goals: If you have the spare money, there's nothing wrong with maxing out your HSA. But if you're behind on other financial goals, like paying off student loans or saving for a down payment, you might want to tackle those first and make smaller HSA contributions.
Factor monthly contributions into your budget
You can start small, perhaps setting aside $25 to $50 per paycheck. Consider also trying to cut back on non-essential spending, such as foregoing one of your app subscriptions, reducing meals out or making your morning cup at home versus going to a coffee shop.
Once you turn 65, you can use the money in your HSA for anything you want. 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.
Will my HSA account remain open if I have a $0 balance? The account will remain open if you have a $0 balance.
In 2024, you can contribute up to $4,150 if you are covered by a high-deductible health plan just for yourself, or $8,300 if you have coverage for your family. In 2025, you can contribute up to $4,300 if you are covered by a high-deductible health plan just for yourself, or $8,550 if you have coverage for your family.
Any contributions above the IRS set limit will be considered as taxable income. If you over contribute to your HSA and don't correct it, you may be charged a 6% penalty rate each year on the excess that remains in your account. Although funds in your HSA are tax-free, tax penalties may arise.