Renew Your 2021 Resolutions: 5 Tips for Maximizing Your HSA Savings

We all start a new year with the best of intentions—exercise more, eat better, get a restful night’s sleep…or maybe even save money. If you’re like most of the population, at this point that January first resolution might be more in your rearview than a daily practice.

The good news is that you have plenty of time to get your financial resolutions on track, especially if you’re looking to make the most of your health savings account (HSA) this year. Let’s look at five HSA tips that will help you prioritize your health to wealth strategy and make the rest of your year healthier, calmer, and perhaps even more…predictable!

It’s well known that employer-sponsored health savings accounts (HSAs) let people set aside pre-tax money to cover health care costs. This allows HSA account owners to make the smart financial decision of paying for items and services they would have paid for anyway, but using funds that haven’t been taxed.

However, what happens if you don’t have many health care expenses? Or, what if you want to pay for them out of pocket, with the potential to reimburse those expenses later? Happily, HSAs are a fantastic savings tool. Interest, dividends, and capital gains earned on HSA dollars are nontaxable. So any money in your HSA that you don’t spend, can continue to grow and gain interest.

HSA owners don’t need to worry about losing their funds, because once you open the account, that’s it. It belongs to you and stays as long as you want to keep it. It doesn’t expire, and it doesn’t go away with job changes or retirement. You can keep contributing to it, using funds from it, or letting it grow as long as you’d like.

Get those resolutions going! Save with your HSA.

Great. HSA owners can cruise along, knowing their tax-free dollars are safe in their accounts. Now what?

If the year goes as planned, that money can be reinvested. HSA owners can invest funds, and then earnings from compounding interest on that money can be used to make additional investments, which then again increases earnings.

With HSAs, it’s even possible to combine investment accounts to get the best possible returns. For instance, HSAs work well in tandem with 401(k)s.

Preparing for retirement is easier with a 401(k) due to matching contributions from an employer, preferential tax treatment, investment options, and compounding growth. The difference is that a 401(k) is a long-term investment account and if you withdraw money before age 59 and a half, you must pay a hefty penalty tax on the funds. Thus, it is preferential to leave money in a 401(k) untouched until retirement.

Using both HSA and 401(k) benefits allow account owners to make the best financial decisions for their health and retirement. By owning both accounts, an HSA lets people safeguard their 401(k)s. Let’s say that someone needs money for an unexpected medical bill. That person doesn’t want to use money from the 401(k) unless absolutely necessary because they would be penalized for withdrawing funds early. However, HSA funds are available and intended for that exact purpose, and an HSA owner could leave the 401(k) alone. As a result, by owning both accounts, users can make better medical and investment plans.

With half of Americans having access to a 401(k) plan, and millions of people already using an HSA, there’s a lot of room for growth. Join them!

One of the top misconceptions about HSAs is that people think they can’t afford one. In reality, many people with HSAs are paying for items and services they were likely already going to purchase, except now they can use money they didn’t pay taxes on. It’s not like there’s some catch, either.

For instance, say an account owner puts enough money in an HSA to cover just an annual health plan deductible. If the HSA is just used to cover this, it’s already money ahead. Or, say the account owner has an unexpected health care bill. It’s always an option to contribute more until the account hits the yearly IRS limit. That way, owners can put money in the HSA, take it out to pay for a health care expense, and still get the tax savings.

An employee who opens an HSA at age 25, contributes 3,000 a year, but only uses $1,500 a year for expenses, could see it grow to over $400,000 by age 65! The growth could be even more if the HSA remains untouched.

Assuming the owner used $1,500 a year for medical expenses, earned 8% a year in interest and investments, and reinvested the earnings, savings can really add up.*

If you want to estimate how much you can save with an HSA, try our HSA Growth Calculator!

It’s a pain keeping every single receipt when you just want everything to be digital. Thankfully, many HSAs offer payment cards that can be used like a debit card. If account owners make a regular practice of carrying it around, they can use it everywhere it’s accepted. Sunscreen, over-the-counter treatments, items for baby care–wouldn’t it be great if you had your payment card on you whenever you needed to pick something like that up?

The IRS even requires businesses like pharmacies, grocery stores, and wholesale clubs to have a system–Inventory Information Approval System (IIAS)–that identifies expenses for health care payment cards. This way, the approved items are already in the system, and people can easily use their health care payment cards to purchase them. You can use your card to pay for doctor’s visits through your provider’s portal or bill pay system, too!

Payment cards are even moving into digital wallets, making it possible to use a payment card without even physically having it in your possession.

By using a payment card, account owners won’t miss out on using HSA funds on eligible items.

What’s coming up for the future? Although it’s hard to predict much, it is possible to plan for some known expenses, such as planned surgeries, childbirth, and chiropractic care.

Scenario one: Diana knows she has a knee injury that eventually will need attention. She’s not in a hurry, so she uses her HSA along the way and leaves what’s left over in her account. She watches it grow until she knows she’s accrued enough to cover her surgery costs. Not only did she watch her money compound, but she’s able to use her savings to cover her surgery—on money that was never taxed.

Scenario two: Bob and his wife are planning on having a baby. He pays for their health care expenses out of pocket and contributes to the IRS maximum in order to quickly build up a bigger total in his HSA. Over time, he’s able to build up a substantial amount, and by the time he and his wife have their baby, they’re able to pay for their childbirth costs–and for baby items!

The more money users can keep in their accounts, the more they can grow–tax free.

Keep in mind: no matter where you are in your HSA journey, it’s never too late to learn more about—and optimize—your savings strategy. Here’s to health, wealth, and smart savings decisions all year long.