HSAs in every budget: A guide for emergency savers

This is the second article in our series, “HSAs in every budget.” Find the other articles here: “A guide for spenders” and “Investing for retirement.”

Thanks to their versatility and benefits, Health Savings Accounts (HSAs) have been rising in popularity over the last several years.¹ HSAs can fit into many budgets, whether you need to pay medical bills now, want to save for later or want to invest funds once your balance reaches a certain threshold.

Unfortunately, many HSA owners do not fully comprehend the power of their account.² By understanding the details of how HSAs work, you could get more bang for your HSA buck.

*Your HSA plan may offer investment options once your balance reaches a certain threshold. All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. All security transactions involve substantial risk of loss.

Basic benefits of HSAs

HSAs are specialized accounts that pair with High Deductible Health Plans (HDHPs), a type of medical insurance that typically offers lower monthly premiums in exchange for a higher out-of-pocket annual deductible. The federal government allows HDHP users to contribute pre-tax money (via payroll deduction) into an HSA that can then be used towards eligible medical expenses such as the out-of-pocket costs associated with a HDHP.

While the IRS places limits on how much you can contribute to your account each year, there are no balance restrictions and your HSA is yours forever as long as there is money in the account — even if you change jobs.

Save for a health emergency

Unlike a Flexible Spending Account (FSA), which needs to be used during the plan year or you forfeit unused money, you do not need to use your entire HSA balance each year. If you have few health-related costs (or simply a saver’s mindset), your HSA can be a great “rainy day fund” for your health expenses.

The most popular way to make deposit money into an HSA is through a “pre-tax contribution” through your paycheck. We love this method because:

• It removes mental and physical barriers to saving money.
• It puts good money habits on autopilot.
• The pre-tax contribution lowers the dollar amount that your income taxes are based on.

HSAs can be great for individuals who have found it difficult to save in the past. Since the funds can only be used for eligible medical expenses, HSAs can help eliminate the temptation to withdraw money for “fun.”

Without any extra effort, you can deposit money, enjoy tax advantages and create a nest egg for your health care spending needs.

It’s important to keep in mind that the amount saved in taxes will vary depending on the amount set aside in the account, annual earnings, whether or not Social Security taxes are paid, the number of exemptions and deductions claimed, tax bracket and state and local tax regulations.

Tips for HSA savers

1. Don’t leave an extra dollar behind. It’s common for employers to offer additional money to their employees’ HSAs, either through contribution matching or wellness activity participation. Don’t miss these opportunities for extra funds.
2. Adopt emergency fund goals. One standard goal amount for emergency funds is three-six months of expenses. Similarly, you could set a goal to have two years of your HDHP’s annual deductible saved in your HSA.
3. Consider saving more each year. The IRS updates limits each year, and typically, they increase the amount HSA owners can contribute to their HSA. By making incremental increases to your contributions, you can potentially build your fund faster without diminishing your take-home pay.
4. Keep your eligible health receipts anyway. HSAs do not have a restriction on substantiating reimbursement. If you decide later that you should have used your HSA for an eligible health expense, you can still reimburse yourself. Just be sure you have your receipts and keep clear records of your withdrawals.
5. Track your HSA spending. When it comes time to spend your HSA funds, stay organized. Remember to save all the receipts for every purchase. If you are taking cash to reimburse yourself, keep clear records to track which receipts are tied to your withdrawals.
6. Use your HSA before your workplace retirement plan. If a financial hardship hits, avoid touching your retirement plan. Doing so has financial ripple effects that may last the rest of your life. Instead, see which everyday expenses are eligible for purchase under your HSA — you may be surprised by what’s eligible.

Save successfully with an HSA

HSAs are great tools that allow HDHP users to contribute, grow and withdraw pre-tax and tax-free dollars for eligible health-related costs. There are no limits around age, income level or the amount you can have in your account. Note that you will be unable to contribute once you are enrolled in Medicare (typically age 65).

They are perfect for beginners to save money to be used for eligible expenses related to life events like a planned pregnancy or an emergency room trip for your kid who hurts their arm while learning to skateboard.

But if you’re serious about saving your HSA funds as long as possible, you could consider enrolling in voluntary benefits such as accident insurance, critical illness or specified disease insurance and/or hospital indemnity insurance. These are limited benefit coverages that pay a benefit when a specifically covered event (illness, accident treatment or injury, or hospitalization) occurs, helping to minimize the financial impact.

HSAs can also be great supplemental accounts for your retirement savings — providing tax-free withdrawals for medical expenses at a time when your income is limited. Many HSAs offer the ability to invest your money, which offers potential for growth.

It’s important to remember that all investing involves risk of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. All security transactions involve substantial risk of loss.

Log in to your Voya HSA account to review your contributions.

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