Are you wondering how much you should allocate to your HSA? It’s a common question because it’s not necessarily an account that you know how much you’re going to need to take from it, but there is a great way to plan for how much you should include.
I’ve looked into what this number should be and while I am by no means a financial expert, certainly not in the area of health spending or taxes, here’s what my research has come up with:
What is an HSA?
First thing’s first, let’s start by briefly going over what your HSA actually is before we get into the nitty-gritty details of how much you want to allocate to it. An “HSA” is a health spending account or a health savings account—it’s often referred to as both.
This is something that you have most likely through your employer or benefits plan (though you can definitely have one on its own), and it’s essentially something that’s available only if you are covered by a high-deductible health plan.
The advantage of having an HAS is that it has better tax rules than your regular money, meaning that when it comes to qualifying expenses they don’t cost quite as much as they would if you paid for them out of pocket. And, ultimately it’s a sum of money that can help pay for qualifying medical expenses that you most likely don’t have the money for in your pocket.
How does an HSA work?
Your HSA works similar to a 401(k), that means that there are tax advantages on these types of accounts. If you have an HSA through your employer, the amount you allocate to HSA is put in before taxes are taken. However, if you have one on your own, you withdraw without tax implications.
Essentially, the benefits of an HSA include:
- Tax free contributions
- Earnings grow tax fee
- Withdrawals are tax free (on qualified expenses)
How Much Should You Allocate to HSA?
To be completely honest, the answer really is however much you legally and feisably can. An HSA is an account that’s built specifically to take care of you and your future in a tax-advantaged way, so it makes money sense to use it to its full advantage.
Like other savings and/or retirement plans with tax advantages, there are contribution limits on your TSA. If you’re wondering how much to put in HSA, then you’ll want to understand those limits well so you don’t overuse (or under use the account if you can add more) and get into tax trouble.
In 2020, the maximum you can allocate to HSA is $3,550 for individuals and $7,100 for families. If you happen to be over 55, you can also make catch-up contributions of up to $1,000.
How much do you allocate to HSA? Share your thoughts in the comments below!
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