This is the average HSA balance at the end of 2022. How does it compare to your balance?
Healthcare is an almost unavoidable expense. Even if you are generally healthy, at some point you may get injured and end up with a hefty emergency room bill. Or you may have to spend more money on medications as you get older.
That’s why it’s so important to do what you can to save on medical costs. In that regard, you have a choice. You can deposit it into a regular savings account. However, if you qualify for a Health Savings Account (HSA), it may be a good idea to put your money there because you can get a tax break on your contributions.
In this respect, HSAs are similar to traditional IRAs and 401(k)s. If you fund your HSA with up to $2,000, the IRS will not tax $2,000 of your income in the year you contribute.
Recent data from the Plan Sponsor Council of America shows that HSA balances are on the rise. And keeping your HSA well funded is definitely a goal worth working toward.
HSA balance increased
The average HSA balance at the end of 2022 was $6,130. This is up from $4,924 in 2021.
Now you might be wondering why it’s a good idea to have so much money in your HSA. That’s because HSAs are very flexible in that you can access the funds at any time. So the more balance you have, the more money you can set aside for healthcare during retirement, when costs are likely to increase.
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Additionally, an HSA allows you to invest your balance so it can grow into a larger amount over time. Not only are investment gains in an HSA not taxable, but so are withdrawals if the money is used to cover qualified medical expenses.
Should you increase your HSA contributions?
If you’re not contributing the maximum amount you can to your HSA, it’s definitely a good idea to increase the amount if you can afford it. The more money you save for medical expenses, the more income you can protect from taxes and the more balance you will have in the end.
This year, the HSA contribution limit is $3,850 if you are under age 55 and have a self-only policy, and $4,850 if you are over 55 and have a self-only policy. If you have family coverage, the limit is $7,750 for those under 55 and $8,750 for those over 55.
If you’re interested in giving more than you’ve invested so far this year but are worried that 2023 is almost over, here’s some good news. HSAs give you time to make contributions until the following year’s tax filing deadline. So, you can fund your 2023 HSA until April 15, 2024.
If you’re worried about overfunding your HSA, there’s another little-known rule. Once you turn 65, you can withdraw from your HSA without penalty to cover costs. It doesn’t have to be medical-related. In this case, you will be taxed on withdrawals, but there are no penalties to worry about.
So think of it this way. If you have a large HSA balance and don’t need to spend a lot on healthcare in retirement, you can always use your HSA as a regular retirement account. Therefore, raising as much money as possible is a very low-risk proposition.
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