How To Maximize Your Health Savings Account Before the End of the Year

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A health savings account (HSA) is a tax-advantaged account designed to help you save for future medical costs. If you have access to this type of account, it’s a good idea to make the most of the opportunity.

Take a look at the key advantages of an HSA and how to maximize your HSA by the end of the year.

Understanding the Advantages

“My top tip for maximizing your HSA by year-end is to understand that your HSA is actually a powerful retirement account in disguise,” said Amy Spurling, founder of Compt, a software platform to manage employee benefits.

Spurling explained, “Unlike FSAs [flexible spending accounts], HSAs aren’t use-it-or-lose-it, so don’t feel pressured to spend the money. Instead, if you can afford it, max out your contributions and invest them. The triple tax advantage — tax-deductible contributions, tax-free growth and tax-free withdrawals for medical expenses — makes HSAs even more powerful than traditional retirement accounts.”

How Much Can You Contribute?

In order to contribute to an HSA, you must have a qualifying high-deductible health plan (HDHP).

For individuals, the deductible attached to your health plan must range from $1,600 to $8,050. For families, the attached deductible can range from $3,200 to $16,100.

With a qualifying HDHP, families can contribute up to $8,300 to an HSA in 2024, and individuals can contribute up to $4,150. 

Do You Qualify To Make Contributions?

“More companies are offering high-deductible health plan premiums to their employees, because they offer lower than the typical HMO and PPO premiums,” said Heather Guarnera, director of HR consulting at Tower Street Insurance & Risk Management.

Guarnera explained, “Many businesses are finding these health plans affordable for their companies and their employees. With the rise of the high-deductible health plans, we have seen health savings accounts (HSAs) enter the marketplace to aid employees with covering their benefits costs with a tax advantage for long-term savings.”

Depending on your current situation, you may not be allowed to make contributions to an HSA. But the good news is that you will likely have an opportunity to adjust your health insurance options at least once per year. If you have access to a suitable HDHP, you can make the switch to become eligible to contribute to an HSA.

If you aren’t sure whether or not opening an HSA is an option for your situation, consider asking your employer’s human resources department. An HR representative can often help you sort through the different benefits options available to you.

Tips To Maximize Your HSA

Once you have the ability to make contributions to an HSA, it’s time to make the most of this opportunity — try to hit your contribution limit each year.

Explore Your Investment Options

Many HSAs allow you to invest your contributions, which can potentially allow you to grow your savings dramatically over time.

Although investing your HSA contributions can make a big difference to your finances, relatively few HSA accountholders choose to invest a part of their HSA balance. According to a study by the Employee Benefit Research Institute, only 12% of HSA account holders in 2021 invested the funds within their HSA.

Simply making the choice to invest the funds puts you ahead of the curve. But do your best to go beyond simply throwing your funds into a random investment. Instead, intentionally choose to invest your HSA contributions into an asset that suits your investment goals.

Don’t Touch Your Contributions, If Possible

As you build your HSA through contributions, do your best to avoid using the funds to pay for medical costs. If you can afford to leave your contributions invested within your HSA, it gives your funds a chance to grow through investment returns.

Since this account comes with extensive tax advantages, including tax-free growth, leaving your funds to grow without dipping into your contributions can go a long way toward setting yourself up for a stable financial situation.

Keep Your Receipts

If you are able to cover your medical expenses out of pocket without dipping into your HSA, keep the receipt handy.

“You can get reimbursed for any qualified medical expense that occurred after you opened your HSA, even years later,” said Spurling. “Save your receipts — you could even save them digitally in a simple Google Drive folder — let your HSA investments grow, and reimburse yourself down the road when you need the money.”

Only Use the Funds for Qualified Expenses

If you want to make a tax-free withdrawal from your HSA before you turn 65, you’ll need to use the funds for a qualified medical expense. Although there is a lengthy list of qualified medical expenses, some include:

• Routine health evaluations
• Immunizations
• Tobacco cessation programs
• Obesity weight-loss programs
• Screening services.

If you withdraw funds for a non-qualified expense, expect to face a tax penalty.

Keep Saving Until Tax Day

The calendar year ends on Dec. 31. But you can continue making contributions to your HSA until tax day of the following year.

For example, say you contributed $3,000 by Dec. 31, 2024, but you want to max out the contributions limit. You’ll have until April 15, 2025, to finalize your contributions.

Make Up the Difference

If you aren’t going to reach your contribution limit through payroll deductions, you can deposit funds into your HSA through a bank transfer — you’ll be eligible for the tax benefits on those funds when you file your taxes.

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