How to Make the Most of Your Health Savings Account

If your health plan offers an HSA and you’re not taking full advantage, pull up a chair. Financial expert Jean Chatzky—coauthor of Age-Proof: Living Longer Without Running Out of Money or Breaking a Hip—cuts through the jargon and shares her secrets for maximizing those HSA perks for your whole family.

What Exactly Is an HSA? And How Does It Differ From a Flexible Spending Account?

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Photo by Tomi Um

Both are accounts that allow you to put away pretax dollars for medical costs. But one is a savings account (HSA) and the other is a spending account (FSA).

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An FSA is a use-it-or-lose-it system. You have to spend your invested balance within a certain time frame, typically a year—it varies from employer to employer. (In some cases, carrying over $500 annually may be allowed.) With HSAs, your tax-free contributions are yours forever and will hopefully grow over time. You decide when to take the money out to pay for eligible medical costs.

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What Falls Under the Category of Eligible Costs for HSAs?

A lot—the IRS has a document detailing all qualified items (search for “pub 502” at irs.gov). Basically, it’s any common-sense medical expenses (doctor’s visits, dental treatments) or anything that’s prescribed by a doctor, including eyeglasses, psychological counseling, and things like crutches. There are a few surprises that are worth checking into: breast pumps, long-term-care insurance, travel costs to receive medical care, and lead-based-paint removal or other home improvements needed because of medical issues.



You Always Hear About Huge Tax Benefits With an HSA. What Are They?

There are many tax breaks with an HSA. Your contributions are tax-deductible, there’s no tax on your earnings, and when you withdraw money from your HSA to pay for eligible medical expenses, you won’t pay tax on it. It really is the best option for tax-free money.

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So I Can Just Leave Money There Until, Say, I Retire—When I Might Have Higher Health Care Costs?

Yes. Even better, at age 65, the rules loosen. Along with paying for medical expenses with no tax penalty, you can use the money for anything. (If you need to use the money for ineligible expenses before age 65, you’ll pay a 20 percent penalty.)

Can Anyone Sign Up for an HSA?

Anyone whose annual family deductible is $2,600 or higher or, for singles, $1,300 or higher. Often you enroll through your employer, but an HSA is not tied to your job. You can take it with you when you go. Freelancers shopping for a plan at healthcare.gov should look at bronze or silver policies if they want an HSA.



How Much Should We Save in There?

The most you can, up to the cap; the maximum allowed annually is $6,750 for families and $3,400 for individuals. Think of an HSA as a health care 401(k) or a supplemental retirement account. In any case, put away at least as much as you think you’ll need for the year’s medical costs (including prescriptions).

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My Family Is Pretty Healthy. Should I Still Contribute All I Can?

Yes. And if the unexpected does happen—or when your kids are faced with the inevitable broken bones, emergency room visit, or braces—you’ll have a stash of savings.

Should I Not Touch the Money Until There’s a Huge Medical Expense?

It’s not wrong to save the money for a rainy day, but it really depends on how you’re going to pay for day-to-day medical bills. If the other option is to use a high-interest credit card, it’s smarter to use your HSA savings. If you have enough in your checking or savings, use that and let the HSA grow.