Only 7% of Americans Plan to Boost HSA Contributions in 2023. Here’s Why it Pays to Max Out This Account

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There’s no other account that offers the same level of tax savings. 

There are certain expenses that tend to be burdensome at pretty much every stage of life. And healthcare is one of them. Whether you’re in your 30s or in your 70s, you never know when you might need money to cover a sudden medical bill.

In fact, medical costs are a common source of debt for Americans. And in extreme cases, they have the potential to drive consumers into bankruptcy.

That’s why it’s so important to have money set aside for healthcare costs — either in a regular savings account or a tax-advantaged account, like an HSA. But according to a recent survey by Principal, only 7% of respondents are planning to boost their HSA contributions in the new year. And that means many people are passing up a big opportunity. Here are three reasons why you should max out your HSA if you can.

1. You can enjoy a host of tax breaks

If you have money in a traditional IRA, you may be aware that your contributions are tax-free, but that your withdrawals are taxable in retirement. And if you’re saving in a Roth IRA, you may be aware that you’re getting the opposite benefit — no tax break on contributions, but tax-free withdrawals as a senior.

What makes HSAs so valuable is that they offer more tax breaks than any other account. HSA contributions are tax-free, investment gains in an HSA are tax-free, and withdrawals are tax-free as long as that money is used to cover qualified healthcare expenses.

2. You won’t have to scramble to cover medical bills

An unplanned visit to the emergency room could easily leave you on the hook for hundreds of dollars in bills. And if your health insurance plan comes with a costly deductible, you may have to come up with a lot of money for medical spending purposes.

The beauty of an HSA is that you won’t have to worry about where that money will come from. You can tap an HSA to cover everything from copays for medication to costs related to surgery.

3. You can set yourself up to worry less about healthcare during retirement

As much as healthcare costs can be substantial during young adulthood and middle age, they tend to rise even more so in retirement. That’s because health issues have a tendency to creep up as people age.

Also, it’s a big myth that retirees on Medicare don’t have to pay anything for healthcare. Medicare is far from free. Not only are there premiums and deductibles involved, but there’s also a range of out-of-pocket expenses, from copays to coinsurance.

Having a lot of money in an HSA could make it so that healthcare is less of a concern in retirement, financially speaking. And that could help you better enjoy your golden years.

Do your best to max out

Maxing out an HSA in 2023 means contributing $3,850 if you have self-only coverage and $7,750 for family coverage. If you’re 55 or older, you can add $1,000 to whichever limit applies to you.

Even if you can’t max out your HSA next year, you should still try to ramp up your contribution rate. Doing so could save you a lot of money in taxes while setting you up to cover whatever medical bills come your way.

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