If you have opted for a health savings account (HSA), the next question is how much to put into it. To qualify for an HSA, you must have chosen a high-deductible health insurance plan. Having a health savings account can help you cover your deductible and other out-of-pocket healthcare expenses, both now and in the future. The following steps may be helpful in calculating how much to put into your HSA.
You may be able to predict your healthcare expenses in the near future based on recent experience. If you have been relatively healthy, your healthcare costs may be low. However, it is always a good idea to have a little extra set aside for an emergency.
With high-deductible health insurance, your deductible will be substantial, as implied by the name. The deductible is the amount you will have to pay out of pocket before your health insurance kicks in. If you think your healthcare expenses may exceed your deductible, put as much cash into your health savings account as you can afford.
Once your balance reaches $1,000, you can start investing your HSA funds. As a general rule, retain some cash for necessary medical expenses and invest the remainder. Interest earned from health savings account investments is tax-free. Investing funds increases your chances of growing your account.
Each year, review your spending in the previous year and make any necessary adjustments to your contribution amount and the amount of investing you do. Remember that HSAs are not “use it or lose it” accounts. Any money left over in your account at the end of the year rolls over into the following year and can potentially continue to grow.
Ideally, if it is financially feasible, you should contribute the maximum amount allowed by the IRS. Health savings account contributions are tax-deductible. Interest earned on an HSA is tax-deferred, and tax-free if used to pay for qualified medical expenses. If your health insurance is a consumer directed health plan (CDHP), you are allowed to contribute up to $3,500 to your HSA for an individual and up to $7,000 for a family in 2019. These limits will go up to $3,550 with individual coverage and $7,100 with family coverage in 2020.
In addition, if you are age 55 or older, you can contribute an addition $1,000. Catch-up contributions are accepted at any time during the year you turn 55.
Determining how much to contribute to your health savings account (HSA) is an important decision that can affect your healthcare and overall financial situation. If you believe you could benefit from professional guidance, our friendly agent will be happy to help.