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How to plan your health savings account

Date posted:  8/2/17 03:30:00 PM Don't let unexpected medical costs catch you off guard. Plan with an HSA.

A health savings account, or HSA, is a tax-advantaged savings account that can be used toward various medical expenses. Planning your HSA and knowing how much to contribute will help you optimize the benefits.

What's the benefit?

HealthInsurance.org noted that in addition to the tax-free deposits you can make each year, some states also provide tax breaks on those deposits made. In fact, all states except for Alabama, California and New Jersey offer a tax break on funds added to your HSA. This can add up when it is time to do your taxes.

The money in your HSA can be used for medical expenses, including:

  • Copayments
  • Coinsurance
  • Dental care
  • Vision
  • Acupuncture
  • Chiropractor services

If you do not need to use your funds, the total will rollover into the next year and collect interest. Should you need to withdraw money for medical expenses in the future, you can plan so you have a larger balance to draw from, so start saving for a rainy day with an HSA.

Who can contribute?

Once you've opened an HSA, you'll want to build your funds. You aren't the only party who can make contributions. Both you and your employer can deposit funds in your HSA. In addition, family members can contribute on behalf of another eligible individual.

What is the max contribution that I can make?

Each year, contribution guidelines are adjusted for Consumer Price Index fluctuations. In addition, the contribution limit varies depending on whether the coverage is for a family or only for you. For 2017, the contribution limit for a self-only HSA is $3,350. If you're contributing to a family HSA in 2017, the limit is $6,750. These limits are subject to annual cost-of-living adjustments, if any are present.

What is a catch-up contribution?

The catch-up contribution limit for all HSAs is $1,000. What exactly does that mean? Essentially it lets individuals who are 55 or older contribute an extra $1,000 to their HSA. However, a Kiplinger contributor noted that you will need to have an HSA-eligible health insurance policy to do so.

If you have a family policy with your spouse, you each can contribute $1,000 as long as you are both 55 or older and neither of you have signed up for Medicare. These contributions must be made to separate HSA accounts. You or your spouse might need to open up a separate HSA for the catch-up contributions.

When can I fund my HSA?

Fortunately, you can make HSA contributions whenever you feel most comfortable. Whether you decide to max out your contributions all at once, or over time, you can increase available medical funds at a pace that is comfortable for you and your financial situation.

Medical costs can add up quite a bit. Do not let it catch you off guard. Start planning your HSA today and save money for future medical expenses for you or your family.