Health savings accounts (HSAs) have been around for nearly two decades, but it’s only in recent years that people have really begun to understand their full potential. Many now use HSAs as another retirement account, but if you’re going to do this, you need to know how to squeeze every dollar out of them. Here are three tips that can help.
1. Invest your HSA funds
Unless you know you’re going to be spending your HSA funds on medical expenses in the near future, you should invest this money. Investing can help your savings grow much more quickly than it could if it was just sitting there, earning a typical savings account’s yield.
You’re allowed to contribute up to $3,650 to an HSA in 2022 if you’re an individual with a health insurance deductible of $1,400 or more. Families with a health insurance deductible of $2,800 or more may contribute up to $7,300 this year.
If you contributed the current individual maximum of $3,650 every year for 20 years — or about $73,000 in total — you’d only make a $33 profit if you kept your money in an HSA that earned a 0.01% APY. But if you invested that money and it earned a 7% average annual rate of return, you’d have over $155,000 at the end of 20 years. That’s an $82,000 profit.
Check with your current HSA provider to see if investing your funds is possible. If not, you may want to consider moving your money to another provider that will allow you to invest your HSA funds.
2. Make catch-up contributions, if you’re able to
HSAs allow adults 55 and older to contribute an extra $1,000 in 2022 if they’d like. This brings their maximum contribution to $4,650 or $8,300 this year, depending on whether they have an individual or a family plan.
You don’t have to do anything special to take advantage of these catch-up contributions. As long as you’ll be turning at least 55 in 2022, you can set aside the extra money without fear of penalty.
Keep in mind that contribution limits and catch-up contributions can change from year to year, so if you plan to max out your HSA every year, you need to stay up to date on these new limits. The IRS typically announces the HSA limits for the next year in the fall.
3. Take advantage of an HSA match if you qualify
HSA matches are similar to 401(k) matches, but they are less common. If you qualify for one, you have to contribute money to your HSA, usually through a payroll deduction, and your employer will also put funds into the account. Its contributions count against your annual contribution limit, so it’s important to keep track of these.
Unlike most 401(k)s, HSAs require immediate vesting. That means that as soon as your employer deposits money into your HSA, it’s yours to keep. Even if you only work for the company for a month and then decide to quit, the company won’t be able to take those funds back from you.
If you’re not sure how your company’s HSA match works or if you have one at all, talk to your employer’s HR department to learn more. If you don’t have access to an HSA through your workplace, don’t worry. You can still open one with any bank or broker you like, provided you have a qualifying health insurance plan.
Regular contributions are key when it comes to growing your wealth in an HSA or any retirement account. But as the tips above show, understanding the rules of your HSA can help you get even more out of it. Stay alert to any changes the government makes to HSAs over time so you can adjust your investment strategy as appropriate.
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