HSA Calculator

What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. HSAs offer a unique triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. Unlike Flexible Spending Accounts (FSAs), HSA funds roll over year to year and belong to you even if you change jobs or retire.

HSA Eligibility Requirements

To be eligible to contribute to an HSA, you must:

• Be covered by a High Deductible Health Plan (HDHP)
• Have no other health coverage (except certain permitted types)
• Not be enrolled in Medicare
• Not be claimed as a dependent on someone else’s tax return

For 2023, an HDHP is defined as a health plan with a minimum deductible of $1,500 for self-only coverage or $3,000 for family coverage, and maximum out-of-pocket expenses of $7,500 for self-only coverage or $15,000 for family coverage.

HSA Contribution Limits

The IRS sets annual contribution limits for HSAs, which are adjusted for inflation each year:

• 2023 Limits: $3,850 for self-only coverage, $7,750 for family coverage
• 2024 Limits: $4,150 for self-only coverage, $8,300 for family coverage

Individuals aged 55 and older can make an additional $1,000 catch-up contribution each year. If you have an HSA for less than a full year, you must pro-rate your contributions based on the number of months you were eligible.

The Triple Tax Advantage of HSAs

HSAs offer three powerful tax benefits that make them one of the most effective savings vehicles:

• Tax-Deductible Contributions: Contributions to your HSA are either pre-tax (if made through payroll deductions) or tax-deductible (if made directly), reducing your taxable income.
• Tax-Free Growth: Any interest, dividends, or capital gains in your HSA grow tax-free, allowing your savings to compound more efficiently.
• Tax-Free Withdrawals: Withdrawals for qualified medical expenses are tax-free at any age, providing tax-free access to your money when you need it for healthcare.

Qualified Medical Expenses

HSA funds can be used tax-free for a wide range of qualified medical expenses, including:

• Doctor visits, specialist consultations, and hospital care
• Prescription medications and over-the-counter medicines with a doctor’s prescription
• Dental care, vision care, and hearing aids
• Physical therapy, mental health services, and substance abuse treatment
• Medical equipment (crutches, blood pressure monitors, etc.)
• Preventive care, screenings, and immunizations
• Long-term care services and insurance premiums

For a complete list of qualified medical expenses, refer to IRS Publication 502.

HSA vs. Other Health Accounts

HSAs differ from other health-related accounts in several important ways:

• vs. FSA (Flexible Spending Account): FSAs have “use-it-or-lose-it” provisions, while HSA funds roll over indefinitely. HSAs also offer investment options and portability between jobs.
• vs. HRA (Health Reimbursement Arrangement): HRAs are employer-funded and not portable, while HSAs are individually owned and funded.
• vs. Traditional Savings: HSAs offer tax advantages that traditional savings accounts don’t provide, making them more efficient for healthcare expenses.

Investing Your HSA Funds

Many HSA providers allow you to invest your HSA funds once your account balance reaches a certain threshold (typically $1,000-$2,000). Investment options may include:

• Mutual funds (index funds, target-date funds, sector funds)
• Exchange-traded funds (ETFs)
• Individual stocks and bonds
• Certificates of Deposit (CDs)

Investing your HSA funds can significantly increase your long-term savings potential, especially if you’re relatively healthy and don’t need to use all your HSA funds for current medical expenses.

HSAs as Retirement Savings Vehicles

Many financial experts consider HSAs to be superior retirement accounts for several reasons:

• No Required Minimum Distributions (RMDs): Unlike traditional IRAs and 401(k)s, HSAs have no RMDs at age 73, allowing you to leave funds in the account to continue growing tax-free.
• Penalty-Free Withdrawals After Age 65: After age 65, you can withdraw HSA funds for any purpose without penalty (though non-medical withdrawals will be taxed as income).
• Additional Tax Savings: The triple tax advantage can provide more tax savings than traditional retirement accounts.

For these reasons, many financial advisors recommend maxing out HSA contributions before contributing to other retirement accounts, provided you can afford to pay current medical expenses with other funds.

Strategies for Maximizing Your HSA

To get the most value from your HSA, consider these strategies:

• Max Out Contributions: Contribute the maximum allowed each year to take full advantage of the tax benefits.
• Invest for Growth: Once you have a sufficient cash balance for near-term medical expenses, invest the rest for long-term growth.
• Pay Current Medical Expenses Elsewhere: If you can afford to pay current medical expenses with non-HSA funds, save your receipts and let your HSA grow. You can reimburse yourself tax-free in any future year.
• Save Receipts for Future Reimbursement: Keep records of all qualified medical expenses, even if you pay them with non-HSA funds. You can reimburse yourself from your HSA tax-free at any time in the future.
• Use Catch-Up Contributions: If you’re 55 or older, take advantage of the additional $1,000 catch-up contribution.