How to Maximize Your HSA

Putting money in your HSA can be helpful for medical expenses. But did you know there are also tax advantages to having an HSA? You can use it as an investment tool and name beneficiaries for the funds. Keep reading for helpful tips so you can maximize your health savings account (HSA).

1. Maximize HSA Contributions

The first strategy you can use to maximize your HSA is to maximize your contributions. Both employees and employers can contribute to an HSA.

For 2023, the HSA contributions limits are $3,850 for an individual and $7,750 for family coverage. For people 55 or older, you can add up to an additional $1,000 as a catch-up contribution.

This is ideal for people because of the benefits HSAs offer:

• Contributions to your HSA are tax-deductible. 
• You can roll over your HSA funds from one year to the next. 
• You don't need to pay taxes on your HSA withdrawals as long as the money’s used to pay for qualified medical expenses. 
• If you’re aged 65 and older, you won’t pay taxes on your HSA funds if you use the money for qualified health insurance premiums. 

2. Consolidate HSAs

Consolidating HSAs is another way to maximize your HSA. You can combine multiple HSA accounts by doing an HSA transfer. There are two options for an HSA transfer: an in-kind HSA transfer and a trustee-to-trustee HSA transfer.

An in-kind HSA transfer allows you to move investments from one HSA provider account to a new HSA provider account. Your HSA provider may allow this transfer if your HSA comprises exchange-traded funds (ETFs), mutual funds, and stocks. 

If your provider allows an in-kind HSA transfer, your current provider will move your HSA to your new provider. For providers who don’t allow this transfer, you can convert your investment accounts to cash and then begin the trustee-to-trustee transfer process.

A trustee-to-trustee HSA transfer allows you to transfer your HSA from one provider to another. Your old HSA provider will work with your new provider to transfer funds. This process takes three steps:

• Open a new HSA account. 
• Call your current HSA provider, telling them you’d like a transfer. 
• Your current and new HSA providers will complete the transfer.

The trustee-to-trustee transfer isn’t a taxable transaction. You can make multiple trustee-to-trustee transfers in a year, so this option works best to consolidate multiple HSAs.

3. Invest a Portion of your HSA Savings

The third way you can maximize your HSA is to invest a portion of it. You can invest a portion of your HSA savings in the same way you can with a 401(k) or an IRA. 

By using an HSA to invest through an employer, you may not have as many options compared to HSAs at banks or credit unions. Depending on where you open your HSA, you can invest your HSA savings in: 

• Bonds 
• Exchange-traded funds (ETFs)
• Mutual funds
• Stocks
• Other securities

4. Save Receipts and Reimburse Yourself

The fourth way to maximize your HSA is twofold. You can save receipts and reimburse yourself after paying the receipt’s expenses. 

There are no time limits on medical reimbursements as long as you have receipts. This will allow you to pay yourself back months or years after paying your initial medical expense.

Saving receipts will be helpful in case the IRS requests proof of how you’ve spent your HSA distribution.

Reimbursing yourself is similar to saving receipts. The IRS doesn’t require you to reimburse yourself in the same year. You can continue to deposit money into your HSA for months, years, or even decades. 

You’ll still have the option to withdraw money from your HSA. Your withdrawal will be tax-free in the future as long as you keep receipts for qualified medical expenses.

5. Take Advantage of Employer-sponsored Wellness Programs

Another way to maximize your HSA is to take part in employer-sponsored wellness programs. These programs allow employees to improve their quality of life, and their benefits can extend to dependents and spouses of employees.

There’s no formal definition for an employee wellness program so companies can offer different wellness programs focused on other areas of employees’ lives. 

Wellness programs sponsored by employers can assist employees in various aspects of life, such as:

• Emotional
• Environmental
• Financial
• Intellectual
• Occupational
• Physical
• Purpose
• Social

6. Assign an HSA Beneficiary

The sixth way to maximize your HSA is to assign an HSA beneficiary. As an HSA owner, you can assign an HSA beneficiary to anyone. 

There are three common ways to assign a primary beneficiary. Whether you’re married, in a second marriage, or single, you can assign a primary beneficiary. You can also choose to assign your beneficiary as a revocable trust or to assign it to an individual.

For people who are married, your spouse can become an HSA beneficiary. Spouses can treat your HSA as their own if they’re the primary beneficiary and if the HSA has a balance. 

If you’ve been married more than once, you may update your beneficiary. You can choose to name your current spouse or former spouse. You can also choose to name children or people outside your family as primary beneficiaries of your HSA.  

As a single person, you can assign your beneficiary to an individual or as a revocable trust. The first option you have would be to your children, family members, or friends as a beneficiary. If you assign a beneficiary to someone who isn’t your spouse, there are a few rules:

• People who aren’t spouses that inherit an HSA will owe taxes on the HSA balance. 
• They’ll owe taxes on the HSA balance based on its fair market value. 
• Non-spouses must include earnings from the HSA as taxable income.

You can also create a trust and appoint a trustee to monitor your HSA. For beneficiaries who’ll be minors, having a trust will ensure your HSA isn’t subject to court-supervised guardianship.

7. Only Spend on Qualified Medical Expenses  

The last way to maximize your HSA is to only spend your funds on qualified medical expenses. By spending only on these expenses, you’ll avoid paying penalties and taxes on your HSA.

There are qualified medical expenses which include:

• Acupuncture 
• Contact lenses, eye exams, and eyeglasses
• Dental treatments
• Hearing aids, including batteries
• Premiums for qualified long-term care insurance 
• Prescription drugs 

Out-of-pocket expenses are also qualified medical expenses for expenses such as:

• Coinsurance 
• Copays
• Deductibles 

Let Us Help You With Your HSA

HSAs are a great way to keep money for your medical needs, invest, and save. They offer benefits with almost no penalties, which anyone with a high-deductible health plan can use. With so many benefits, an HSA is valuable to have at any age and may be useful for your family or spouse as well.

When you need help with an HSA and how you can use it for tax benefits, work with tax pros who can help you. Work with the professionals at 1-800Accountant for help with your HSA.