How to budget with an HSA

Whether you experience anxiety knowing that you have a few items to clean up in your budget, apprehension around not wanting to look at your current budget at all, or even just generalized fear and concern about whether or not you have enough to cover your current expenses… it’s all valid because—let’s face it—budgeting isn’t fun.

Chances are you’ve encountered some of the above feelings when addressing your budget at one time or another. The good news is this: You don’t have to feel this way each time you think about your personal budget. With a little bit of preparation, discipline, and some well-timed information, you’ll soon be on your way to becoming a sparkling financial beacon, and a great way to kickstart your savings is considering opening a health savings account (HSA).

How do I know if an HSA is right for me?

There are several things to consider when deciding whether or not to open an HSA. For instance, an HSA is a great option for people who are generally healthy and want to save for future health care (and other) expenses. 

Even if you do have some chronic conditions that need managing, if you are near retirement, an HSA may be a good option as well because you can take the money into retirement to offset the costs of medical care after retirement. In fact, you even have the flexibility to spend your HSA money however you see fit after you retire! You’ll just pay regular income tax if it’s not for qualified medical expenses.

On the flip side, if you anticipate a significant amount of expensive health care in the next year and would have a hard time meeting a high deductible, a health savings account might not make sense with the high deductible health plan requirement.

So, how can the HSA help with my personal budget?

Glad you asked! There are several reasons the HSA could help boost your budget. 

You own your HSA, so any money you set aside for healthcare costs is yours to keep! On top of that, you control how the funds within your account are spent. You can shop around for the best option for you based on quality and cost of care.

In some cases, your employer may contribute a set amount or even match your contributions to the HSA. This is a great benefit because not only do you receive incentives for being a fiscally smart health care consumer, but the money your employer contributes to the account remains yours to keep, even if you change jobs or retire!

Additionally, any unused HSA funds roll over at the end of each year. Unlike flexible spending accounts (FSAs) that have a “use it or lose it” rule, you keep all of the money in your HSA regardless of what you spend during the year. 

Another great perk of the HSA is its triple tax advantage. Here’s what that looks like. 

1) Any funds you contributed to your HSA are added tax-free.

2) You can spend that money on eligible purchases tax-free.

3) Some HSAs feature options to pay interest on the unused money in your account or invest the money in mutual funds or other financial products. And guess what? The earnings from the HSA are also tax-free!

Ok, so what are some reasons why an HSA wouldn’t be right for me?

In most cases, the tax benefits you reap from having an HSA make them entirely worth having. But we get it. Illness and health care, in general, can be super unpredictable. There are just some health events that are impossible to plan for, making it difficult to accurately budget for these types of health expenses.

And maybe you just aren’t one of those people who’s great at setting aside money into savings. That’s okay! Many of us find it challenging to know how much to put away. And let’s face it, some of us just don’t have the money to spare. 

Likewise, older folks with several chronic and costly health conditions may find it harder to put aside money to save. In cases like these, an HSA just might not be the best option.

Think an HSA might be a good fit for you? Great! Now what?

Congratulations! You just made a savvy financial move that can set you up for major success in the future. Although this was a great first step, there are still some things to consider as you move forward with your HSA. Here are three tips to help maximize the value of your HSA…

1. Find the right HSA for you. 

There are plenty of health savings accounts to choose from that offer different investment options and ongoing costs, so do your research and pick the best option for your financial situation and long-term goals.

2.  Contribute as much as you can!

The IRS sets a maximum contribution limit each year on HSAs and the closer you can contribute to that amount, the better! Obviously, don’t overdo it, but the more you can set aside now, the bigger cushion you have for the future!

3. Be a smart consumer of health care.

You shop around for things like vacations and cars, so why not compare costs for your medical needs too? When you need care, consider your situation and budget. Small things like visiting in-network providers instead of out-of-network or visiting your primary care provider instead of the urgent care or the ER can have a major impact on your budget.

Oh, and one last thing… if you can afford the cost of care out of your own pocket, consider paying for it yourself and letting the funds in your HSA grow. If you think about it, the potential growth of your health savings account is endless!

Whether you’re struggling with your budget or just looking to take your savings game to the next level, consider opening an HSA. It just might be the best thing you do today.