The Case for Maxing Out Your HSA

Article by Elizabeth Ingram
Vice President of People Strategy, CU Insurance Solutions 

I tell people more often than I probably should, that the one change I would have made to my benefits early in my career, would have been to max out my HSA sooner.  At the time, I was young, didn’t really understand what an HSA was, and wanted to save for an apartment of my own.  To be fair, HSAs are hard to understand.  But here’s why you should max yours out (if you have an HSA-compatible health plan).

An HSA is a health savings plan.  It’s a bank account that you own, and the funds in it are yours.

HSAs are triple tax-advantaged: putting funds in saves you on payroll taxes at the time, the interest isn’t taxable, and you don’t owe taxes when you spend the funds.  If you have an individual HSA, you might save $300+ in taxes by maxing out your HSA for one year.

Your employer might put funds in the account; this lowers what you need to put in for funds and can be looked at as a raise.  If your employer puts in $1000 and you make $50,000, participating increases your salary by a non-taxable 2%.

If you don’t have any medical expenses, it may feel as though you’re simply putting funds you could use elsewhere in an inconvenient location.  But, you (your spouse and/or kids) will have medical (dental and vision) expenses at some point; for example: my contacts cost nearly $1000 a year after my vision insurance allowance.

Many HSA compatible plans have deductibles or out-of-pocket limits that are higher than the HSA limit.  Saving money now means there’s a better chance the funds are there when you need them (on those years that you do hit the deductible).  You can think of it as a medical emergency account.

You can invest funds that you don’t need if your funds are at a financial institution with that option.

HSAs can be used for medical expenses in retirement.  A typical 65-year-old couple can currently expect $315,000 in lifetime health expenses.

Save money, stress less about your medical expenses, and consider maxing out your HSA.  The 2023 limits are $3,850 for an individual and $7,750 for family coverage.  Individuals age 55 and older can contribute an additional $1000 per year.