How much should I contribute to my Health Savings Account?

A Health Savings Account (HSA) lets you save money for future healthcare costs while also saving on taxes. How? HSAs are the only benefit with a triple-tax advantage: Tax-free contributions¹. Tax-free account growth. And tax-free spending on HSA-qualified expenses.

There are so many ways to use an HSA (here’s an article that details our top ten). But to be able to use it effectively requires making regular contributions so that your HSA has an available balance.

The big question: What is the right contribution strategy for you and your family?

Obviously, everyone’s financial and healthcare needs are different. And everyone will have different financial goals and budgets.

So, here are seven things to consider as you decide how much to contribute to your Health Savings Account.

#1 Capture your employer HSA match, if available.

If your employer offers an HSA contribution match, then you should consider contributing at least enough to get the full match. It’s like getting free money, just like with a 401(k) match. Not taking advantage of this is leaving free money on the table.

So, check whether your employer offers an HSA contribution match. Then do what you can to make the most of it!

#2 Save enough to cover your annual deductible.

Your annual health plan deductible is the amount you need to pay out-of-pocket before your health insurance starts covering expenses. By saving at least this amount in your HSA, you ensure you’re prepared for the year’s potential healthcare costs.

Having an HSA balance equal to your annual health plan deductible creates a solid foundation, giving you a little peace of mind knowing you can cover these expenses.

Take a minute to locate your deductible amount and consider making it your HSA savings goal!

#3 Be ready to pay for your planned HSA-qualified expenses.

Look ahead and estimate your healthcare costs for the upcoming year, including medical, dental, vision, prescriptions, and even over-the-counter medications. Along with money to help manage your deductible, you’ll also want enough saved to cover some of these expected HSA-qualified expenses.

Contributing enough to cover these expected costs can help you manage your budget and avoid unexpected financial stress.

Not sure what’s qualified? Check out our list of HSA-qualified expenses. You can also use the HealthEquity mobile app to scan barcodes in the store—and it will tell you if an item is covered.

#4 Build a balance big enough to cover your health plan’s out-of-pocket maximum.

Your health plan’s out-of-pocket maximum is the most you’ll have to pay in a year for covered services. By saving at least this amount in your HSA, you build a safety net for catastrophic healthcare events.

This ensures that even in the worst-case scenario, you can handle the costs without financial stress.

Take a minute to locate your health plan’s out-of-pocket limit and consider making it your HSA savings goal!

#5 Max out your available income tax deductions.

HSAs offer significant tax advantages. In fact, HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-deductible with very few exceptions.

By contributing up to the HSA contribution limit each year, you’re able to maximize these tax benefits. Those with family health plan coverage can contribute more than $8,000 a year. And those with individual health plan coverage can contribute more than $4,000 a year.

Importantly, how you make your contributions matters too! Unlike contributions you make on your own, HSA contributions through employer payroll are not subject to Social Security and Medicare taxes. So it pays to prioritize payroll deductions.

That said, if you’re self-employed or don’t have available payroll contributions, all HSA contributions are still income tax deductible at the federal level. So, every little bit can help reduce your annual tax bill.

#6 Complement your retirement savings strategy.

HSAs aren’t just for near-term healthcare expenses. They’re also a powerful tool for long-term retirement savings.

The money in your HSA can be invested² and any growth is tax free, just like a traditional 401(k).

What’s really cool thing is that, unlike traditional retirement accounts, withdrawals for HSA-qualified medical expenses are always tax-free. Compare that with a traditional 401(k) where distributions for healthcare expenses are still taxed as ordinary income.

Another cool thing? After age 65, you can take distributions from your HSA for any expense you want, you’ll simply need to pay ordinary income taxes on the distributions³.

So, HSAs are always tax-free for HSA-qualified medical expenses. Plus, you get the added flexibility after age 65.

For these reasons your HSA can make a great complement to any retirement savings strategy.

Want to learn more about HSA investing? Check out our article: Why you should consider investing your HSA.

#7 Adjust for qualified life events.

Life changes such as marriage, having a baby, or changes in health can affect your healthcare needs and expenses. Regularly review and adjust your HSA contributions to ensure they align with your current situation.

Staying flexible and making adjustments helps ensure your HSA is always working effectively for you.