If you don’t have many medical expenses now, in the long term you’ll be able to benefit even more from the tax advantages of an HSA. You’ll get a tax break for your contributions, then you can build up a tax-free stash of money to help pay for medical expenses in the future — even after retirement. Here are some things you may not know about HSAs, as well as some strategies to make the most of these plans.
1. HSAs Are Not Use-It-Or-Lose It
Unlike flexible-spending accounts, you don’t have to spend the money in an HSA by the end of the year. You can use the money tax-free for medical expenses anytime, even after retirement. In fact, you’ll get a bigger benefit from an HSA if you can use other cash to pay for current out-of-pocket medical bills and leave the money growing in the account for the long term.
2. HSAs Can Provide More Tax Breaks Than 401(k)s
An HSA offers a triple tax break: Your contributions are tax-deductible (or pretax if made through payroll deduction), the money grows tax-deferred, and withdrawals used to pay medical expenses are tax-free. With a 401(k), you’ll get a tax break for your contributions but then have to pay income taxes on withdrawals.
Some people value the tax benefits of an HSA so much that they make funding the account a top priority. They first contribute enough to their 401(k) to get their employer match -– after all, that’s free money -– and then put in the maximum amount allowed in the HSA.
You can contribute up to $3,400 to an HSA for 2017 if you have single health insurance coverage, or $6,750 for family coverage, plus an extra $1,000 if you’re 55 or older anytime during the year.