Making the most of your HSA at every life stage

Whether you've just started contributing to your health savings account (HSA) or have had one for years, you may not realize the savings power you have in your hands.

The triple tax advantages and ability to accumulate funds year over year are why it can make great sense to make the most of your HSA, no matter where you are in life.

I’m only in my 20s. Am I too young for an HSA?

Actually, while you’re in your 20s can be the best time to start taking advantage of this account. When you’re young, health care expenses are generally lower as you are likely to need less medical care. HSAs are exclusively available to people enrolled in an HSA-eligible health plan. One of the reasons that these plans are popular is because the monthly premiums are typically lower, making them more affordable to someone just starting out. When your health costs are low it’s a good idea to start setting aside some money in an HSA.

By contributing to an HSA at an early age, you have the opportunity to let your money grow tax-free for 30 or even 40 years. While you may have other things going on like paying off student loans or saving for a car, even setting aside $50 to $100 per month can add up over time—that’s just as much as many people spend on coffee. The time value of your money is an advantage you won’t have as you get older, so it’s smart to start saving now, even just a little.

Learning about an HSA and its advantages is a great start. No one has ever regretted planning ahead for their financial future. Being informed about your options puts you in control and will boost your confidence that you will be able to meet your future expenses.

Remember: If you ever have an emergency and need access to some cash, you can access your HSA funds. Just bear in mind that you’ll need to pay tax on withdrawals taken for any non-eligible health care expenditures.

I’m in my 30s or 40s. Does it make sense for me?

In your 30s or 40s, often there is a tradeoff between spending and saving. In your 30s you may be looking at major life events, such as buying a home or starting a family. If you’re in your 40s you may be looking at starting to pay for a child’s education or a vacation home. In any case, you’ll want to make saving for health care expenses for now or in the future a priority.

If you have a family, you may feel that you are paying a pretty penny to keep everyone healthy. But contributing what you can, when you can, is a smart move, because an HSA offers you a tax-advantaged way to pay for common medical expenses. Let’s assume you’re in a 25% tax bracket. Paying with pre-tax HSA dollars is like getting a 25% discount on things like prescriptions, dental care or minor surgery—helping you stretch your money further.

Any way that you look at it, you’ll need a pot of money for health care in retirement. So if you can, the next time you have to pay a medical bill, consider paying for it out of your monthly budget so you can let your HSA funds continue to grow to help support your future needs. 20 to 30 years from now you won’t regret increasing your savings.

I’m in my 50s. Is it too late to start saving?

There is no better time to start saving or increasing the contributions to your HSA to maximize the tax benefits. If you’re age 55 or older, you can also take advantage of the $1,000 annual catch up contribution.

While it may seem challenging to save more, it’s a good idea to consider how you could re-align your finances to allow you to contribute more to an HSA now, while you are still working. Even people who are healthy usually become a bigger consumer of health care as they age. For example: A healthy couple may need up to $273,000 for health care expenses after they retire1.

The closer you are to retirement, maxing out your HSA contributions to build a nest egg to use for qualified health care expenses in retirement can also free up your other retirement savings— allowing you to focus on things that are important to you.

Later, when you are retired, you’ll be happy you planned ahead to pay for health care costs with an HSA. Medicare premiums, long-term care, nursing services, medications and more are all currently qualified to be paid from an HSA account.

Still thinking about it? Learn more about HSAs here.

1Source: Employee Benefits Research Institute, January 2017. A 65-year-old couple, both with median drug expenses would need $273,000 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 2017.