Health Savings Account Strategies
Anthem BCBS
UniCare - Illinois
UniCare - Indiana
Humana One - Illinois
Humana One - Indiana
Aetna
United HealthCare
Strategies to Manage Your HSA
HSA funding and distribution rules are flexible, allowing you to manage your HSA in a manner that best fits your financial goals and circumstances.
When should you fund your HSA? How much should you fund? How much should you withdraw? When should you withdraw funds? The answers to these questions depend on your personal situation, involving factors such as fund availability, your preferred investment alternatives and the value you place on minimizing your administrative tasks.
Following are a few basic strategies for managing your HSA:
Minimize Cash Outlays
If your cash availability is low, or you have preferred investment alternatives, you can make minimal deposits to your HSA -- just enough to pay your qualified medical expenses with pre-tax money.
HSA deposits are made only after you incur qualified expenses. You deposit/withdraw funds each time you have an expense, or you deposit/withdraw a lump sum near the end of the tax year
If you're following this strategy you don't need an HSA administrator providing the broadest spectrum of services. You just need an administrator with a low minimum balance requirement and low fees.
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Maximize Tax-Advantaged Savings
You can fund your HSA to the maximum and never withdraw funds until you're 65. However, you'll be paying all your qualified health care expenses with after-tax money rather than with pre-tax money.
This approach is more sensible if you're in a lower tax bracket, meaning there's a more narrow difference between your after-tax money and your pre-tax money. Also, this strategy makes more sense if you're expecting higher returns on your HSA funds. An example would be a large HSA balance invested in growth-oriented stock funds.
If you're seeking to maximize your HSA savings, you'd likely prefer a full-service HSA administrator offering a broad menu of investment options.
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A Balanced Strategy
Fully fund your account, or deposit as much as you can based on your budget. Pay qualified expenses directly from the account, or pay with non-HSA funds and later reimburse yourself from the HSA.
This approach allows you to maximize your tax deduction and minimize your out-of-pocket health care expense. It's the strategy that makes the most sense for the majority of people, and it's the type of behavior the federal government had in mind when HSA-enabling legislation was passed in 2003.
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More HSA Management Observations
- You'll maximize the growth of your tax-deferred funds by making HSA deposits as early in the year as possible. On the other hand, if it fits your purposes, you can wait until just before the April tax filing deadline to make an HSA deposit and get the deduction for the previous year.
- You'll also maximize growth of your tax-deferred savings by delaying the withdraw of funds. Pay your qualified expenses with non-HSA money, then wait as long as you can to reimburse yourself from the HSA.
- For tax purposes, it doesn't matter whether you pay qualified expenses straight out of your HSA, or pay with non-HSA funds and later reimburse yourself from the HSA. Just keep good records (in case of IRS audit) so you can reconcile your HSA withdraws with your qualified expenses.
- As your HSA balance grows, return on investment becomes a more important consideration. Paying some additional HSA administration fees starts to make more sense when you get a higher return on your account balance.
- As your HSA balance grows, you might want to raise your deductible and reduce the premium you pay for your HSA-compatible health insurance. For example, a $10,000 family deductible may seem risky when you have no health savings. But if your HSA has a $20,000 balance, you might like the idea of raising your deductible and saving a few thousand dollars in annual insurance premium.
