A health savings account (HSA) is a tax-advantaged medical savings account available to U.S. tax payers who are enrolled in a high-deductible health plan (HDHP). You can almost think of a HSA as a retirement fund for your medical expenses.
A HSA offers a triple benefit in terms of tax savings:
Contributions are tax-deductible
Invested money grows tax-deferred
Withdrawals can be used tax- and penalty-free for out of pocket medical expenses in any year
Unlike a flexible spending account (FSA), which it is often confused with, funds in a HSA roll over year-to-year, and can be used any time (i.e., no deadline).
Funds in a HSA can be used for a number of qualified medical expenses, including deductibles; co-payments; Medicare Part B, Part D, and Advantage premiums; and other expenses not covered by your health plan, such as dental, vision and chiropractic care.
There are some stipulations regarding eligibility and contributions that that are updated each year.
For 2019, these stipulations are:
Your high-deductible health plan (HDHP) must have a deductible of at least $1,350 for individual plans or $2,700 for family plans.
The maximum out-of-pocket expense for your HDHP must be $6,750 for individual plans and $13,500 for family plans.
You can contribute up to $3,500 per year for individual plans and $7,000 per year for family plans.
Once you sign up for Medicare, you can no longer make contributions to your HSA, but you can use funds already invested in your HSA at any time after that tax- and penalty-free.
You may be wondering how much you should contribute to your HSA each year. The answer to this, of course, depends on a number of factors specific to you and your HSA, including the expected ROI presented by your HSA investment options, your expected medical expenses, your HDHP deductible, and the excess funds you have available for investment. A common recommendation is to make annual contributions of at least the amount of your annual HDHP deductible, and then evaluate any additional contributions as you would for an investment savings account. Another common recommendation is to pay for current out-of-pocket medical expenses with other funds and let the HSA account balance grow tax-free until needed in retirement.
The HSA Future Value Calculator below can help you make HSA contribution decisions. While this will provide some general direction, it is always wise to seek advice from a professional financial advisor to make a final decision as to which is the best option for you.
What is the Future Value of my HSA Contributions?
This calculator helps you estimate the future value of your HSA contributions.