Now’s the Time to Maximize Your Health Savings Account

Before getting caught up in the holiday rush, take a minute to evaluate the status of your health savings account (HSA). You’ll want to take advantage of its benefits before year-end, which can mean different things depending on your situation. You might need to consider opening a new account, scheduling a last-minute appointment or reimbursing yourself for out-of-pocket expenses. Spending a little time now focusing on the details can mean a big investment in your future.

Health savings accounts are the wave of the future in employer-provided health care. More and more companies are offering HSAs alongside high-deductible health insurance plans. They save employers money, and also serve as a great tax break for consumers. If your employer doesn’t offer one, you can always open your own account at your credit union or bank.

How Does It Work

Your money goes into an HSA before it’s taxed, then grows tax-deferred. Funds can be withdrawn tax-free to cover medical expenses, including your deductible and health costs that aren’t covered by your plan. Once you’re 65, you can use the money in your HSA to cover nonmedical expenses as well, making them a great investment for retirement. 

One common misperception about HSAs is that you have to use your money or lose it. This is true of flexible spending accounts (FSAs), but not HSAs. You can build up HSA funds and carry them over year after year. Because you’re putting in pre-tax dollars, an HSA is similar to a traditional IRA.   

When I had each of my kiddos, I knew I would max out my individual deductible for the year they were born. So when my due dates for both kids were the first week in January, I was thrilled. I had the deductible amount in an HSA, ready to pay for the birth costs. Once that was met, my medical costs were taken care of by insurance for the rest of the year.  

Possible Scenarios

If you’re close to meeting your deductible or have already met it, it might be time to make an appointment for a more costly procedure you’ve been putting off. Your insurance will cover your costs at a higher rate before the year ends and your deductible resets to zero.

If you have an HSA but haven’t funded it very well, consider socking away some cash in there to get the tax benefit. The contribution caps for HSAs in 2016 are $3,350 for individuals and $6,750 for families.

My goal is to have two times our family deductible built up in our HSA at the beginning of every year. That way, if we meet our deductible this year, we are still prepared for next year and have time to build it back up before we may need it again. It still earns interest and we don’t pay taxes on it! Because we also have employer contributions, the money grows that much faster. 


Kat's Money Corner is posted in the Kansas City Star every week. Kat Hnatyshyn, when not blogging or caring for her little ones, is a manager with CommunityAmerica Credit Union. For more financial chatter, follow us on Twitter @CommunityAmerCU. 

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