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Have a health savings account? Read on for a good way to manage it in 2024.
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It’s a good idea to save money every year. And there are different types of accounts you can do that in.
If you’re trying to build an emergency fund, you’ll want to put your cash into a savings account. If you’re socking funds away for retirement, an IRA or 401(k) is a good bet because you’ll enjoy some tax savings on your money.
You can enjoy similar tax savings on money earmarked for healthcare expenses by taking advantage of an HSA, or health savings account. And if your health insurance plan is compatible with an HSA, then it pays to sign up for one in 2024.
For your health plan to be HSA-compatible next year, it must:
Have a minimum self-only deductible of $1,600 or family deductible of $3,200Have an out-of-pocket maximum of $8,050 for self-only coverage or $16,100 for family coverage
Based on this, it may be pretty clear that not everyone is eligible to contribute to an HSA. If you’re able to participate in one of these plans, you can do two things in the new year to make the most of yours.
1. Max out your HSA
As is the case with traditional IRAs and 401(k) plans, HSA contributions go in on a pre-tax basis. So if you put $500 into an HSA, the IRS won’t tax $500 of your income.
In 2024, HSA contributions max out at $4,150 for self-only coverage and $8,300 for family coverage. However, if you’re 55 or older, you’re allowed to make a $1,000 catch-up contribution on top of whichever limit applies to you.
Now, maxing out your HSA may not be feasible if money is tight and you’re barely able to cover your pressing expenses. But one thing you should know is that just as employers will sometimes match contributions to a 401(k), so too will they sometimes make HSA contributions to their employees’ accounts.
Find out if this is a benefit you’re privy to. If you’re 30 years old with self-only coverage, it may be that your employer will put $2,000 in your HSA. So it might only take $2,150 from your earnings to max out.
2. Leave your HSA balance alone
The purpose of having an HSA is to have funds available for medical expenses. Those might arise next year, in a decade, or during retirement.
You’re allowed to tap your HSA at any time to pay for healthcare bills. And you don’t have to use up your balance year after year.
Quite the contrary — one of the best ways to make the most of your HSA is to not tap your balance when medical bills arise. So if you encounter healthcare expenses in 2024, if possible, pay them directly from money in your bank account and leave your HSA balance intact.
This is a smart strategy because HSA investments grow tax-free. If you put $2,000 a year into your HSA over 20 years, that’s $40,000 coming out of your own pocket. But if you leave that money invested for decades, it might grow into $120,000. And then, you’ll get to walk away with $80,000 free and clear of taxes that you can spend on medical care throughout retirement, when you’re likely to need that money the most.
And if you’re thinking, “I’m not going to need that much money for medical bills in retirement,” think again. Fidelity reports that the average single person aged 65 in 2023 will need about $157,000 after taxes to cover their retirement healthcare costs.
For many people, saving in an HSA won’t even be an option in 2024. But if you’re able to participate in an HSA, do your best to max it out and keep your balance invested as long as possible.
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