Because there are no limits on how much money you can accrue in your HSA over time and no restriction on rolling over funds year to year – or job to job – you don’t have to spend your HSA money for every expense that comes along. Here are some strategies to consider for using your HSA funds:
- For smaller health care expenses, consider paying out-of-pocket in order to save your HSA funds for larger medical expenses in the future.
- Similarly, for those planning for retirement, you may consider paying out of pocket for all expenses and simply using your HSA as a savings account to pay for future Medicare expenses.
- If you’re facing a higher-than-expected health care bill and don’t have the funds in your HSA, you may adjust your paycheck contributions or make a lump-sum contribution* to pay for the expense with before-tax dollars – which may save you 25% to 40%, depending on your tax bracket. If you adjust your contributions or make a lump-sum contribution, please ensure that your annual HSA contributions don’t exceed the IRS limit.
- To maximize the interest you can earn, pay out of pocket for the year and save all receipts. Then, submit claims for reimbursement at the end of the year (or years later – there is currently no time limit).
- Always consider the before-tax savings: if you pay $20 for a generic prescription using HSA funds, you may get $5 or more in tax savings. So even making small monthly contributions to your account can save you money.
- Consider contributing enough to cover your annual deductible amount before using your HSA funds for expenses.
* Paycheck contributions are made on a before-tax basis; any lump-sum contributions can be treated as a deduction on your federal tax return. Note that no taxes are withheld, including FICA, for HSA contributions made through payroll.