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How Much Should You Put Into a Health Savings Account?

A Health Savings account is available only to those enrolled in a high-deductible health plan. This account is designed to help cover current and future medical expenses and offers some tax advantages. HSA owners need to decide how much to put in an HSA each month or year.

Here are some key guidelines for determining how much to contribute to an HSA:

  • As an individual, you can put up to $3,600 an HSA in 2021.

  • Those with a family HSA have a contribution limit of $7,200.

  • If you are 55 or older, you can put an additional $1,000 in an HSA.

  • Find out what you need to do to qualify for employer contributions to an HSA.

  • Unused funds can be rolled over to future years.

Here's a look at the HSA contribution limits and criteria you can use to determine how much to save for your health expenses.

Consider Maxing Out Your HSA

The IRS places a limit on how much you can contribute to an HSA each year. In 2021, if you have an individual HSA, you can put up to $3,600 in the account. If you have a family HSA, the contribution limit is $7,200 in 2021. Those who are 55 or older can save an additional $1,000 in an HSA.

Contributing to an HSA provides numerous tax savings opportunities. Funds contributed to HSAs are tax-deductible, meaning the amount can be taken out of your taxable income for that year. The funds in the account can be invested, and the earnings accumulate tax-free. And if you take out funds before age 65 to use for qualified medical expenses, the withdrawals won’t be subject to tax.

You can use contributions to an HSA to help cover qualified health costs during the year. Any funds that aren’t used during the year stay in the account and roll into the next year. If you withdraw funds to pay for non-medical items before age 65, the distribution will be subject to income tax and a 20% penalty.

When you turn 65, you can withdraw funds from the account and use them toward any expenses. The withdrawal will be subject to taxes, but you won’t face a penalty. If the distribution is used for medical purchases after age 65, you won’t have to pay taxes on the withdrawal.

How Much Should You Contribute to an HSA?

If you can't max out your HSA, you will need to pick another amount to contribute. Find out if your employer will contribute to your HSA, provide a match to your contributions or make an HSA contribution as part of a company wellness program. In addition to your employer, other people can contribute to your HSA. You may have family members who want to add funds to your account.

If you don’t use all the money you contribute in a given year, you can use the funds for medical expenses in a future year. Since the funds consist of pretax dollars, you’ll still gain some savings by putting money into the account over the year and then using it as needed.

What Happens to Your HSA if You Switch Health Plans?

When you have an HSA, the account belongs to you. If you change jobs, you can keep the account. However, if you switch health plans during the year, you may no longer be eligible to contribute to the account. For instance, say your family has an HSA with a contribution limit of $7,200, and you change jobs and health plans in July 2021. Your contribution limit for the HSA would be limited to 6/12 of the annual amount, which coincides with the six-month period from January to June in 2021. The limit would be $3,600. If you contribute too much to an HSA, you can take out any extra contributions before filing taxes for that year to avoid a penalty.

If you are evaluating Health Care insurance options as an individual or family, or for your employer group, give our team a call at RCB & Associates, LLC, for help in Michigan at 616-233-9050.

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