Top Tips to Maximize Your HSA

Get the most out of your health savings account

11/22/2016

Top Tips to Maximize Your HSA

According to the Employee Benefits Research Institute, 37 percent of employees eligible for a health savings account do not have one. Despite the benefits of health savings accounts (HSAs), 31 percent of people still say they don’t see the need for one. A better look at how to get the most out of an HSA might change some people’s minds.
 

Fully understand the benefits

Many people have heard of the readily available Flexible Spending Accounts (FSA) but don’t realize the benefits of an HSA. Similar to contributions to an FSA, contributions to an HSA are made pretax, saving you money for your net income, and contributions up to the annual limit are tax-deductible.
 
Furthermore, any interest you earn on the account accumulates tax-deferred, withdrawals aren’t taxed and—an often unsung advantage— the account can move with you from job to job.
 
“Unlike Flexible Spending Accounts, you can roll over HSA funds from year to year,” says Joe Stein of CNBC. “There’s no ‘use it or lose it’ clause.”
 

Contribute as much as possible

It comes out of your paycheck before tax is applied, and you never lose it — why wouldn’t you opt to contribute the maximum allowed? Especially if you anticipate high out-of-pocket medical expenses in the future (for children’s braces, for example), you should put in the $3,400 per year or $6,750 per year limits as of 2017 for individuals and families, respectively. An added bonus: Both you and your employer can contribute to a health savings account on an annual basis, Forbes says.
 

Know what is eligible

HSA funds can be used tax- and fee-free on medical expenses such as your deductible, copayments, prescription drugs or bills not covered by insurance. The IRS determines the medical expenses that are eligible, as listed in IRS Publication 502 (http://www.irs.gov/pub/irs-pdf/p502.pdf). On the downside, if you use your HSA money on nonmedical expenses or those not approved by the IRS, you are required to pay taxes on that withdrawal, as well as cough up a 20 percent penalty if you’re under 65.
 

Do your research

With personal control of an HSA, you have more control over your money. Comparison shop for big-ticket items like surgery or an MRI by using online calculators and other tools made available online by many insurance companies. Also, you may want to ensure that your health plan offers an HSA to begin with, and if it does, is there a catch?
 
“It’s important to ask to see a full schedule of fees and charges when you’re shopping around for the right HSA,” Stein said.
 
Furthermore, read up thoroughly on what you’re getting from your HSA in regard to your options. Some HSA providers allow you to invest your contributed funds into one of 22 Vanguard accounts, for example. Meanwhile, others provide only a federally insured savings account. Still other big financial institutions require a minimum balance of $2,000 before you even get any options. Therefore, being an informed health care consumer is of the utmost importance.
 
For IRS auditing purposes, you are required to keep receipts for everything you purchase with your HSA. Organize your account in a hassle-free way by scanning or taking pictures of your receipts and keeping them on file digitally in a central location.
 
Adults over age 65 also tend to maximize their HSAs by using them as a supplement for retirement, as the guidelines seem to benefit older consumers. Still, the best way to take advantage of your HSA is to use it as it was intended—for out-of-pocket medical expenses—and follow the tips above.
 

Published by North Shore Bank. Includes copyrighted material of IMakeNews, Inc. and its suppliers. 

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