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How to estimate your ideal personal HSA savings maximum

Investing your HSA funds may help you in the future, but you still need to plan for health care expenses today. That’s why it’s important to come up with an ideal savings maximum. Here’s one way to do it.

If you have a high-deductible health insurance plan, one way to financially prepare to pay for your medical expenses is through a health savings account (HSA). An HSA is a tax-advantaged account that helps you pay for medical expenses with before tax dollars. Through this type of savings vehicle, you can invest your money and watch it grow, without having to pay taxes on any gains at this time (pretty cool, right?!) But before you start investing all your HSA money, you should estimate your ideal HSA savings maximum first. 

How an HSA savings maximum works 

When you invest in an HSA, you want to see your money grow but also have some of it accessible to pay for medical expenses now. At Starship, we give you the option to set a savings threshold, aka a savings maximum. Once that savings maximum is met, the rest of your funds will be invested to help you grow your hard-earned dollars. Here’s how to make it happen.

Look at co-pays and regular costs 

You can think of your HSA as a place to house your health care savings to pay for medical expenses. It’s also a great place to leverage those funds and invest them while benefiting from tax savings. 

To play it safe, before you start to invest your HSA funds, you want a savings maximum you feel comfortable with that can help you cover medical expenses now. Take a look at your copays for physicals, doctor visits, and any normal procedures you may need. Understanding what those average costs are can help you understand what you should keep in the savings vs. investments portions of your HSA. 

Review your current situation 

First, you should look at your current financial situation. Are you all set with an emergency fund? Still tackling debt repayment? 

If you’re comfortable where you are right now financially and have some margin, you may want to consider paying out-of-pocket for your medical expenses and keep your money in the HSA where they can be invested. 

It really depends on your financial situation as well as your risk tolerance. Though investing can lead to gains — and with an HSA, those grow tax-free as long as they are spent on medical care — there is still risk involved that needs to be considered. 

You can also review your medical and health-related expenses from the past year to give you an idea of how much you have spent. This could help you set an HSA savings maximum that feels good for you while putting the rest to work through investments. 

Managing savings vs. investing in your HSA 

As of 2021, it’s possible for a single filer taxpayer to contribute up to $3,600 per year to an HSA. So that is the maximum you can save each year into your account. While you can invest all of your contributions, we don’t recommend it. 

Why? Because if you’re using your HSA funds to pay current medical expenses, your HSA debit card pulls from your Spending Account, not the Investment Account. So if you invest it all, you won’t have the funds left over to pay for expenses or reimburse yourself for out of pocket medical costs. Of course, you can move your funds back and forth, but the bad news is that it can take 3 to 5 days to move funds from your Investment Account to your Spending Account. More on that here.

A good benchmark to start could be to keep $1,000 in your Spending Account to be accessible for immediate medical expenses. If you max out your account, you’d then have $2,600 in contributions available to invest as well. 

Bottom line 

An HSA can be a powerful tool to help you save for healthcare costs. But while you can invest all of your contributions, instead, we recommend you find just the right fit of savings versus investments for you. Consider your current medical expenses and where you’re at financially, while also comparing your short-term versus long-term goals. Make sure that you only invest what you’re willing to part with and deal with the ups and downs that come along with investing. Keeping all of this in mind can help you more accurately estimate your ideal HSA maximum.