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Fresh Year. Fresh Start to Make the Most of Your HSA Tax Savings.

Feb 10, 2021 8:00:00 AM

As we settle into the second month of the new year, it’s the perfect time to visit—or revisit—your HSA contribution strategy to ensure you’re making the most of your HSA tax savings. One of the best upsides of having a health savings account is its unique ability to save you money in taxes in multiple ways, like the fact that all your HSA contributions are 100% tax deductible. But the dollars you stand to save in taxes are directly tied to how much you contribute to your HSA, along with what you do with those contributions.

For this blog post, we’ll focus on how to reach your maximum annual HSA tax savings potential through your HSA contributions. For a more in-depth look at the complete strategy to save and invest your HSA funds for maximum overall tax benefits and the best long-term, tax-advantaged account growth, check out our previous blog dedicated to that topic.

Maximize Your HSA Tax Savings by Maxing Out Your Annual HSA Contributions

For any given year, when it comes to your HSA contributions and your tax savings potential—the more you contribute, the more you save.

Contributing the maximum HSA annual contribution limit to your HSA each year ensures you’re maximizing your tax savings upfront, while also adding the most tax-free funds to your HSA to save and invest for the long term. Simply put, the more you contribute to your HSA year over year, combined with the tax-free growth of your HSA investments and interest, the more you save in taxes each year while building tax-free equity and setting yourself up to be able to fund your future healthcare—and perhaps other—expenses exclusively through your HSA.

When it comes to how much you can contribute each year to your HSA, remember that the IRS does set specific limits based on your coverage.

  • 2020 Maximum HSA Annual Contribution Limits
    • Individual coverage: $3,550
    • Family coverage: $7,100
  • 2021 Maximum HSA Annual Contribution Limits
    • Individual coverage: $3,600
    • Family coverage: $7,200

And don’t forget two other important caveats when it comes to maximum HSA contribution limits:

  1. If you’re 55 or older, you’re also eligible for an additional $1,000 catch-up contribution on top of either coverage-level maximum HSA annual contribution limit
  2. Each maximum HSA annual contribution limit includes all contributions from all sources—meaning if your employer or anyone else contributes to your HSA, you need to take that into account to not exceed the maximum limit each year

What an HSA Accountholder with Family Coverage Could Save

It all comes down to numbers. Check out this quick example of what an HSA accountholder with family coverage and an estimated federal tax rate of 22% could stand to save from a tax perspective upfront simply by adjusting their HSA contributions up to their maximum annual limit for 2020:

  • Example 1 – Not Maximizing HSA Contributions
    • If the accountholder only contributed $100 per month to their HSA for 2020, totaling $1,200 in HSA contributions, they’d stand to save $325 in taxes for the year
  • Example 2 – Maximizing HSA Contributions
    • If the accountholder contributed $591.66 per month to their HSA for 2020, up to the maximum annual limit of $7,100, they’d stand to save $1,921 in taxes for the year—almost 6 times the savings

HSAs Provide the Flexibility to Adjust on the Fly

If you’ve read up to this point, you already know that HSAs provide flexibility in terms of when and how you can make contributions. But the importance of an HSA’s contribution flexibility can’t be understated.

With a health savings account, you have the ability to adjust your approach on the fly, whenever you need to, as many times as you need.

So, if you set yourself up to contribute to the maximum HSA annual limit at the start of the year, but something unanticipated happens or your circumstances change down the line, there’s no need to panic. You can adjust your HSA contributions as needed without penalty. You’re never locked into one set amount for any period of time.

The same holds true on the flipside. Even if you’re not in a position to contribute the maximum HSA annual limit to your HSA right now, you can always make adjustments—small or large—at any point to bump up your HSA contributions and increase your tax savings.

With an HSA, you hold the cards.

The same flexibility also applies when it comes to how and when you choose to take advantage of your HSA funds.

With a health savings account, there’s never a time limit on using your tax-free HSA dollars as long as the expense is HSA-eligible and was incurred while your HSA was open. You can choose to pay with your HSA funds upfront, or you can always reimburse yourself for HSA-qualified expenses at any point in the future if you want to keep maximum funds in your account to invest and grow—even if it’s years or decades away. All you need to do is keep your receipts for whenever you wish to cash in on your tax-free HSA dollars.

Take Advantage of Contribution Planning Tools to Bring Clarity to Your HSA Contribution Strategy

One final note on making the most of your HSA contribution strategy—you don’t have to devote hours to your planning or be a health savings account expert to nail down a solid strategy. Take advantage of any HSA contribution planning tools available to you to help you quickly and painlessly run the numbers to figure out the best contribution strategy tailored to your specific situation.

If you choose Bend HSA, you’ll get access to our industry-unique HSA Contribution Planner. Our quick and easy-to-use HSA contribution planning tool lives right on your main account dashboard and has been thoughtfully designed to guide you toward the best HSA contribution planning strategy in a matter of moments. You’ll get a quick window into how different annual contribution options and other factors impact how you plan for today and save for tomorrow.

If you’d like to discover more about how Bend’s HSA Contribution Planner works, we’ve got you covered. Click here to read more.

Don’t Forget About All the Other Benefits an HSA Offers

Along with a variety of tax-savings potential that in and of itself makes an HSA worth having, health savings accounts also offer many other benefits that can’t be overlooked.

HSAs are portable and stay with you no matter what. You own your HSA and it’s always yours to keep and use—even with a job change, insurance plan change, retirement or otherwise. And as long as you stay enrolled in an HSA-qualified high-deductible health plan (HDHP), you can continue to make contributions up to the maximum HSA annual limit to continue to maximize your HSA tax savings. And remember, with an HSA, you can always change your contributions on the fly quickly and easily, as many times as you choose.

There’s also never a use-it-or-lose-it scenario with a health savings account. Your funds roll over indefinitely without penalty year over year and can be used for a wide variety of healthcare costs now and into the future, including over-the-counter medications, feminine care products and many other expenses you might not think would be eligible.

And with the right HSA, you can invest your funds tax-free to boost your long-term financial wellness. With an industry leader like Bend HSA, you can take advantage of the unique ability to invest your HSA balance similar to, but more tax-advantaged than a 401(k), setting yourself up for a bright financial future and saving more for retirement with best-in-class investment options.

Your HSA, Your Choice

Another HSA benefit is that where you choose to open your HSA is your choice. There’s no restriction on who you choose as your HSA provider, and you can even choose to open more than one HSA if you so desire. This can be especially helpful if you have an HSA through your employer, but would like to take advantage of the features a different HSA provider offers.

Just be aware—not all HSA providers are created equal.

The HSA industry is still in its growth phase, and HSA offerings vary substantially since they’re not yet as standardized as other types of accounts. From fees and deposit security, to opportunities for investment account growth and overall ease of use, it’s important you take the time upfront to find the best HSA fit for you, so you’re not stuck with a low-performing account that’s cumbersome to manage and loaded with fees and other limitations.

So do your homework. And make sure you find the right HSA provider who makes maximizing all the benefits of your account quick, easy and headache-free, regardless of how much you know or don’t know about HSAs.

Maximize Your HSA With Help from Bend

Partnering with the best HSA provider to easily maximize your HSA tax savings and other HSA benefits is a no-brainer.

Maximize your HSA this year, last year and for years to come by choosing a Bend HSA. You get the smartest, most user-friendly HSA on the market, guaranteed to give you the HSA results—and tax savings—you’re after.

Open your Bend HSA today.

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