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How much should I contribute to my Health Savings Account?

With health care costs on the rise, many families are concerned about being able to afford medical services and supplies. The good news is that by opening a Health Savings Account (HSA), you’ve already taken the first step in preparing to pay for out-of-pocket medical expenses.

But now you might be wondering how much to contribute to your account to help you maximize the HSA’s potential tax benefits1and build enough in savings to cover health care expenses both now and in the future.

Reality check: How much could you need for health care in retirement?

Studies show how much a 65-year-old man and woman retiring today would need to save to cover out-of-pocket medical expenses in retirement.2

Image of a 65-year-old man with text representing the $184,000 a man retiring today would need to save to cover out-of-pocket medical expenses in retirement.
Image of a 65-year-old woman with text representing the $217,000 a woman retiring today would need to save to cover out-of-pocket medical expenses in retirement.

Depending on how many years you have until you retire, you may not be able to save the full amount needed, but by starting now to contribute as much as you can to your HSA, you’ll be better prepared for health care in retirement. Consider the following contribution strategies to help you build your savings for the future.

5 HSA contribution strategies to consider

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Max out your contributions if you can

If you’re able, consider contributing the annual maximum amount. The more you can contribute, the more you can benefit from the HSA’s potential tax advantages.1

Keep in mind: your HSA doesn’t have a “use it or lose it” rule, so you don’t have to spend the balance in your account by the end of the year, and the money in your account is yours for life — even if you change jobs, change health plans or retire.

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Consider contributing the difference between premiums

If your employer offers both a traditional health plan and a high-deductible health plan (HDHP), you may consider opting for the HDHP, which typically offers a lower monthly premium. You can then contribute the amount you save in premium costs to your HSA.

Example:
Let’s say the monthly premium for the traditional plan is $450 and $200 for the HDHP. By opting for the HDHP plan, you can set aside the $250 difference each month in your HSA — and in a year’s time you’ll have contributed $3,000. With this strategy, you can use your HSA to pay for out-of-pocket expenses until you reach the HDHP’s higher deductible.

Graphic showing that if an HDHP monthly premium were $200 and a traditional plan monthly premium were $450, you’d have a total monthly cost savings of $250 with an HDHP. Contributing that $250 per month into an HSA would total $3,000 in HSA funds after 12 months.
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Contribute at least the amount of your deductible

You’ll be responsible for paying for health care expenses out of pocket until your annual deductible is met, so consider contributing at least the amount of your deductible to your HSA.

You may also want to boost your contribution to cover copays you may encounter after your deductible is met.

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Factor monthly contributions into your budget

Not sure what you’re able to contribute to your HSA while still covering your other living expenses? You can start small, perhaps setting aside $25 to $50 per paycheck.

Consider also trying to cut back on non-essential spending, such as foregoing one of your app subscriptions, reducing meals out or making your morning cup at home versus going to a coffee shop. You might be surprised at the impact trimming the budget in some places can have on your monthly health care savings goals.

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Calculate a contribution amount that works for you

To help you set a savings goal and contribution strategy, use the HSA calculator.

The calculator allows you to model different contribution scenarios—such as increasing your yearly contribution or spending less on annual out-of-pocket medical expenses—and the impact they can have on your retirement savings.

Take the next step

With health care costs likely to continue to rise, it’s time to take another look at how you can use your HSA to help you pay for out-of-pocket medical expenses. By implementing these contribution strategies, you can be proactive in building your balance and feel more comfortable about managing health care costs knowing you’ll be prepared.

1Potential Tax Advantages: You can receive federal income tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses, you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax, unless an exception applies. Any interest or earnings on the assets in the account are federal income tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA directly (not through payroll deductions). In addition, HSA contributions may reduce your state income taxes in certain states. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America [and Merrill] recommends you contact qualified tax or legal counsel before establishing an HSA.

2Employee Benefits Research Institute, Issue Brief, no. 599, January 18, 2024. A 65-year-old couple, both with median drug expenses, needs $351,000 to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement. Savings needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at age 65 in 2020. A 65-year-old man needs $184,000 or a 65-year-old woman would need $217,000 to have to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement.

Investing involves risks. There is always the potential of losing money when you invest in securities.

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice.

State and/or local income tax treatment of payroll contributions may vary. Participants may wish to consult with a tax advisor regarding the state income tax treatment of such contribution.