Managing your personal finances is about more than just paying your monthly bills, there are short and long-term savings goals and health expenditures. That’s where a healthcare savings account or an “HSA” comes into play.
What is an HSA?
An HSA is just like any other savings account but the funds saved in it can only be used for healthcare expenditures. The medical and dental healthcare expenditures that you use your HSA to pay for must be qualified by the IRS. To qualify to have an HSA, you need to first be enrolled in a High-Deductible Health Plan.
Having an HSA can have a number of benefits besides having a dedicated account to cover your medical and dental needs, including:
- Tax benefits
- Multiple contributors are allowed to allocate to your HSA
An HSA is essentially a type of health insurance that’s qualified by the IRS.
How much should you allocate to your HSA?
If you have an HSA, figuring out how much to allocate to your HSA can be a challenge. The simple answer is that it’s most beneficial for you to contribute the maximum amount to your HSA that you can reasonably afford.
But that’s not always a good enough answer, and honestly, not everyone has that same opportunity. If that’s the case for you, there are a few things you can do to determine how much you should be saving:
Allocate to Your HSA at Least the Amount of Your Deductible
Start with allocating at least the amount of your deductible to your HSA. That way you will be off to a good start when it comes to saving money for your medical and dental expenses.
Figure Out What You Need
Beyond a base contribution of the deductible, when it comes to figuring out how much should you allocate to your HSA it helps to predict what you might need to save for.
Granted, medical and dental expenses can be hard to predict. But where you can it’s important you do. In the case where you’re relatively healthy, it’s important that you still contribute so you’re prepared should there be an emergency.
Remember That You Can Invest
Your HSA funds can be invested to help you save additional money in the long-run, so it’s important to remember that the money you invest won’t just sit there not doing anything.
A great rule of thumb is to pick a threshold for cash contributions that you can pull out in a pinch, and invest the rest. Say, for example, that you already allocate to your HSA $1,000 or even $1,500, anything over that you might want to consider investing.
Adjust as You Go
Just like any other savings planning, it’s important to revisit what you allocate to your HSA on a yearly basis. That way, your investment grows as you do!
How much do you allocate to your HSA? Share your thoughts in the comments below!
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