Whether you’re just starting to use a Health Savings Account (HSA) or have had one for years, there are a few things you should be aware of that can make a huge difference in how much money you save. Here are three ways to use your HSA depending on your individual circumstances.
Strategy 1 – Fund your HSA only when you need to pay dental or medical expenses
There is no requirement to fund an HSA, so when money’s tight, you can just run money through your HSA to make your out-of-pocket costs tax deductible.
Most HSA administrators provide up to two free debit cards (one for you and one for your Authorized Signer) when you open an account. Debit cards make it simple to pay for qualified health care expenses. Some HSA administrators are even coming out with HSA credit cards that can be used when you don’t have enough funds to cover your immediate health care needs.
Strategy 2 – Fully fund your HSA and only withdraw to cover medical bills
Most people want to fund their HSA with either a lump sum at the beginning of the year or a monthly deposit. Remember that your HSA can start growing with tax-free earnings as soon as you deposit money, so contribute as soon as possible to maximize your tax-free earnings and tax deductions.
Strategy 3 – Fully fund your HSA and delay withdrawals to make the balance grow faster
To get the most tax-deferred growth, fully fund your account each year and, if possible, pay your health care bills using a different account. You can then reimburse yourself tax free for medical expenses at a later date with the tax-free earnings. There are no requirements that withdrawals occur within any specific time frame after you incur medical expenses.
Regardless of how you use your HSA this year, all of these options are open to you until you enroll in Medicare. At that time, you won’t be allowed to make further contributions.