3 HSA Mistakes You Don’t Want to Make This Year

There are a variety of savings accounts that offer various tax benefits. But perhaps no single account offers more than an HSA or health savings account.

An HSA allows you to protect some of your income from the IRS because contributions are made on a pre-tax basis. You can then invest your HSA funds, and the gains will not be taxed. HSA withdrawals are also tax-free if used to cover qualified medical expenses.

But to get the most out of your HSA, it’s important to avoid mistakes that could save you money. Here are three things to avoid this year.

Image source: Getty Images.

1. Not realizing you are eligible

HSAs are not for everyone. Your health insurance plan must be HSA compatible.

But just because it wasn’t like that in the past doesn’t mean it isn’t like that now. It is important to review your health plan to see if you are eligible for an HSA this year.

In 2024, if you have self-only insurance, your health plan will need a deductible of at least $1,600 to qualify for an HSA. If you have family insurance, your minimum deductible increases to $3,200. Your health plan must also have an out-of-pocket maximum of $8,050 for self-only coverage and $16,100 for family coverage.

If your plan falls under these guidelines, you may want to allocate money to an HSA as soon as possible. Unlike Flexible Spending Accounts (FSAs), you don’t have to commit to specific contributions for the previous year. You can change or change your HSA contributions at any time.

2. Use your balance for short-term bills when you can afford it out-of-pocket.

With an HSA, you can withdraw money at any time to cover qualified medical expenses. But if you want to make the most of your HSA, don’t withdraw it every time a medical bill comes up. If you can afford to cover those bills out of pocket, do so and save money.

The money you invest in an HSA can grow tax-free. So the more money you leave in your account, the more tax-free profits you can earn.

Additionally, many people realize that their health care costs are higher in retirement than while they were working. Therefore, it is a good idea to save as much money as possible for that stage of your life.

3. Forgetting about catching up contributions

This year, you can contribute up to $4,150 to your HSA if you are self-insured, or $8,300 if you have family coverage. But just as IRAs and 401(k) plans allow savers to make catch-up contributions, the same goes for HSAs. And it’s a good idea to make it because it’s more money you can protect from taxes and invest tax-free.

Whether you have self-only coverage or family coverage, the maximum additional contribution to your HSA this year is $1,000. And you can make it up when you turn 55. Note that this is age 50, which is a different age than the age at which withdrawals are allowed for an IRA or 401(k).

HSAs are truly great savings tools. Do your best to avoid these mistakes so you can reap maximum benefits.