HSAs: Contribution Limits, Recommendations, and Employee Investments
With HSA contribution limits in mind, employees can maximize their healthcare savings and benefits by utilizing a few key tips when managing their health savings accounts.
How Do HSAs Work?
A health savings account (HSA) is a personal bank account with significant tax advantages that can be used by an individual to pay for qualified medical expenses, typically on high-deductible health plans (HDHP).
HSA funds are also automatically rolled over every year and can be used indefinitely, so long as the purchase is a qualified medical expense. However, there is a limit to the amount that a person or family can contribute to their HSA each year, as well as limits on HDHP minimum deductibles and HDHP maximum out-of-pock expenditures.
(The IRS announces updates to these policies each year.)
How Much Should Employees Contribute to their HSAs?
Employees are permitted to make contributions either through automatic deposits from regular payroll deductions or through manual deposits. With the latter method in mind, full tax benefits won’t be realized until the person has filed their taxes.
Of course, a company shouldn’t recommend a specific contribution amount for their employees. Put simply, your team’s health needs aren’t all the same. One person may not require a single healthcare service for the entire year while another may need surgery, regular prescription refills, and other necessary coverage.
However, organizations can contribute to employee HSAs. According to online payroll service Paycor, among those that contribute, companies employing fewer than 500 people averaged $750 per single employee and $1200 per employee plus dependents. Meanwhile, companies that employ 500-plus employees “generally contribute $500 per single employee or $1,000 for an employee plus dependents.”
If employees need contribution advice, it’s recommended that they work with the financial service professionals who administer the HSA to determine how much they should contribute based on their unique healthcare needs.
Invest HSA Dollars to Maximize Benefits
All of this considered, one of the biggest missed opportunities for employees is not investing HSA funds, which can help account holders maximize their health benefits.
Remember that HSA funds don’t expire, that the money rolls over year to year, and that you can contribute until you turn 65. With smart contribution and investment strategies, these funds can literally last you a lifetime. As Investopedia puts it, account owners can maximize their investments “by waiting as long as possible to spend your HSA assets.”
It can’t go without mentioning though that while sound in theory, this advice is very difficult to follow for many workers and families. Accidents happen and unexpected expenses arise. Kids need glasses and braces, and suddenly what seemed important in your 20s is no longer at the top of your priorities in your 30s. Still, working with an advisor and doing what you can to grow these funds can pay off in the long run.