How much should you contribute to your HSA?

Are you contributing enough to your Health Savings Account (HSA) each year? While figuring this out may seem complicated, there are several strategies to consider when deciding how much to contribute to your account. Keep reading to learn more about benefits of each option.

Every year the International Revenue Support (IRS) sets limits on HSA contributions, which are adjusted for inflation each year. The 2021 limits for employee-only coverage is a $3,600 annual contribution, and for family coverage the annual HSA contribution limit is $7,200. For those age 55 or older, an extra $1,000 “catch-up” contribution amount is permitted.

Here are some options to consider when choosing how much to contribute to your HSA:

How much to contribute	Details	Benefits
Match your employer’s contribution	Employer contributions are often spread throughout the year, for example on a quarterly basis, or in the form of a lump sum.	Contributing even a small amount could be beneficial.
Annual contribution limit	For 2021, the maximum individuals can contribute is $3,600 and $7,200 for families.	Contributing the maximum amount will help lower your taxable income and gives you the most tax-free interest on your account.
Your medical insurance deductible	This amount is how much you pay toward your health care bills before health insurance begins to cover it. Your HSA can help cover these costs.	Covering your deductible will help create an adequate budget to cover your initial out of pocket health care costs.
Out-of-pocket maximum up to the annual contribution limit	This is the most you can spend on health care expenses from your own pocket before your health plan covers everything. This includes your deductible and copay or coinsurance.	This will help you be prepared for the “worst-case-scenario.” If you don’t use all the money in your HSA, the money will roll over to the next year.

To figure out which option is best for you, consider how financially prepared you are for unexpected non-medical costs. If you aren’t financially stable enough for these unexpected costs, contributing the maximum amount may not be the best option for you. Instead, consider splitting your savings between your HSA and a liquid (easily accessible) savings account.

Second, account for all your medical expenses for the year. For example, if you spend $100 each month on a prescription, you could contribute at least $1,200 to your HSA. This will allow you to enjoy the tax advantages on money you will already be spending on health care costs. Another option is contributing the amount of your annual deductible so your initial out-of-pocket costs will be covered in the event you have a large bill or medical emergency.

Lastly if you feel financially stable enough, consider contributing the max amount to your HSA. If you don’t use all the funds within a year, the amount will roll over year-over year without a maximum account balance limit. You may also have the option to invest your HSA funds. Investing your HSA can help increase your tax-free growth, retirement savings and asset growth. If you are considering investing your HSA, it's important to note you will have to maintain both the required minimum investment balance and the amount of money you anticipate using on your health expenses for the year.

Understanding how much to contribute to your HSA is key to getting the most of your account.

How much should you contribute to your HSA?

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