HSA is the most tax advantaged, so it should be maxed before all others and saved the most aggressively.
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.
Basically, your contributions should be (the maximum you can afford to save for retirement)+(whatever you're budgeting this year for medical expenses) up to $3600 in one year, then avoid withdrawing anything even for medical if you can afford to.
You can only contribute a certain amount to your HSA each year, but all contributions roll over from year to year. 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.
Medical expenses are inevitable, so it could be a smart strategy to max out an HSA, especially since you don't risk losing the money and can take full advantage of the tax benefits. Just be cautious about prioritizing maxing out your HSA if you have other financial needs that could make better use of that cash.
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.
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.
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.
Contribute the maximum amount: Since the money in your HSA does not expire, it's a good idea to contribute as much as you can each year. The HSA contribution limit for 2024 is $4,150 for individuals and $8,300 for family coverage.
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 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.
You should 100% max it. An HSA is a super retirement account: money goes in tax free, grows tax free, and can remove the money tax free. There is no other investment vehicle like that.
Finally, consider which account will give you the most tax benefits. An HSA is taxed in essentially the same way as a 401(k), except it also includes tax-free medical withdrawals, so in that sense, the HSA wins.
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
1. HSA contributions are pre-taxed (or tax-deductible.) Interest and investment earnings on HSA contributions can grow tax-free. This of course is a great reason to let an HSA account balance grow for as long as possible.
Max out your contributions if you can
Keep in mind: your HSA doesn't have a “use it or lose it” rule, so you don't have to spend the balance in your account by the end of the year, and the money in your account is yours for life — even if you change jobs, change health plans or retire.
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).
Best. Contribute at or near the maximum and invest most of it for the long term. This affords you the full triple tax benefit. For 2025, contribution limits are $4,300 (an increase of $150 from 2024) for individual coverage and $8,550 for family coverage (an increase of $250).
Still, despite workers spending more on health care in 2022 than in previous years, average balances in HSAs increased, rising from $4,318 in 2021 to $4,607.
Use HSA funds to pay for emergency medical costs.
A better option is to pay with other funds and keep track of expenses. Medical claims never expire, so money can be withdrawn tax-free in retirement in order to reimburse medical expenses that were paid out-of-pocket years before.
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.
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.
Toothpaste is not eligible for reimbursement with a flexible spending account (FSA), health savings account (HSA), health reimbursement arrangement (HRA), limited-purpose flexible spending account (LPFSA) or a dependent care flexible spending account (DCFSA).
The 2024 HSA contribution limits represent an increase from the previous year's amounts of $550 for family coverage and a jump of $300 if you have individual coverage. That is a lot more money to help cover qualified medical expenses.