VisualCalc’s HSA Future Value Calculator can help tax payers make HSA contribution decisions.
A health savings account (HSA) is a tax-advantaged medical savings account available to U.S. tax payers who are enrolled in a high-deductible health plan (HDHP). You can almost think of a HSA as a retirement fund formedical expenses.
A HSA offers a triple benefit in terms of tax savings:
Contributions are tax-deductible
Invested money grows tax-deferred
Withdrawals can be used tax- and penalty-free for out of pocket medical expenses in any year
Unlike a flexible spending account (FSA), which it is often confused with, funds in a HSA roll over year-to-year, and can be used any time (i.e., no deadline).
Funds in a HSA can be used for a number of qualified medical expenses, including deductibles; co-payments; Medicare Part B, Part D, and Advantage premiums; and other expenses not covered by a consumer’s health plan, such as dental, vision and chiropractic care.
There are some stipulations regarding eligibility and contributions that that are updated each year.
For 2019, these stipulations are:
A high-deductible health plan (HDHP) must have a deductible of at least $1,350 for individual plans or $2,700 for family plans.
The maximum out-of-pocket expense for a HDHP must be $6,750 for individual plans and $13,500 for family plans.
Someone can contribute up to $3,500 per year for individual plans and $7,000 per year for family plans.
Once someone signs up for Medicare, they can no longer make contributions to their HSA, but they can use funds already invested in their HSA at any time after that tax- and penalty-free.
Consumers may be wondering how much they should contribute to their HSA each year. The answer to this, of course, depends on a number of factors specific to them and their HSA, including the expected ROI presented by their HSA investment options, their expected medical expenses, their HDHP deductible, and the excess funds they have available for investment. A common recommendation is to make annual contributions of at least the amount of their annual HDHP deductible, and then evaluate any additional contributions as they would for an investment savings account. Another common recommendation is to pay for current out-of-pocket medical expenses with other funds and let the HSA account balance grow tax-free until needed in retirement.
