(Adam Levy)
An HSA, or Health Savings Account, is one of the most versatile and tax-efficient accounts detailed under the IRS tax code. Using an HSA can save you income tax, FICA tax, and capital gains tax, and you can often withdraw funds from the account tax-free. That’s why it’s my top priority when saving for retirement.
To use an HSA, you must have an eligible high-deductible health plan. The idea is to give people who need to cover substantial costs before their insurance kicks in an extra incentive to save for when those expenses occur.
If you qualify for an HSA, be sure to make the most of it. Here are three HSA secrets you can use to maximize its benefits.
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1. Move your HSA to a better provider
You can fund your HSA through your employer, and your employer will open an account for you with a provider of their choice. But you don’t have to stick with this provider. Once funds are deposited into your account, they belong to you. Nothing prevents you from moving these funds.
Your employer’s default provider may charge fees and limit your ability to invest your funds. You can make a simple HSA transfer to a provider at no cost and with plenty of investment choices to get the most out of your account.
Be aware, however, that your provider may charge a fee to transfer your funds to a new account. Be sure to limit your transfers in this case and make sure the fee is worth it. You may be able to ask the new supplier to reimburse the costs.
2. Open an HSA even if you don’t have the money right now
An HSA with $0 can still be surprisingly useful.
Once you open an HSA, any medical expenses you incur from that point on can be reimbursed by any funds you deposit into the account. All you have to do is keep the expense receipt and use it to make a withdrawal at some point in the future.
It’s also worth noting that you have until your tax due date to contribute to an HSA for the previous year (if you were eligible). But you must have opened an account in the previous year and participated in a qualifying health plan to be able to make a contribution the previous year.
So even if you don’t have the cash right now, it can pay to open an HSA. As long as there are no fees or account minimums, there is no harm in doing so.
3. Contribute while on your parent’s plan
Young workers may qualify for an HSA while still on their parents’ health insurance. If you cannot be considered a dependent and you participate in your parent’s eligible high-deductible health insurance plan, you can contribute to an HSA.
To use an HSA, you will need to open your own account directly since you are not going through your employer. Because you are technically on a family insurance plan, you can deposit an amount up to the family contribution limit for the year ($7,300 in 2022). You don’t even need earned income to contribute to the HSA, so you might have other sources of money you could use to contribute, such as a windfall or gift.
It’s important to note that your contribution will not prevent your parents from also contributing to an HSA, so feel free to contribute as much as you can.
Get the most out of your HSA
An HSA is extremely versatile and can save you a lot of money on taxes. You can use it for long-term savings goals like retirement, but it can also save you money in the short term on your medical care. If you know how to use it, you can stand out from those who don’t.
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