Health Savings Accounts (HSA) are a way to save pre-tax income that will be used exclusively for medical expenses.
Quick Facts about using an HSA
- Pre-65 Withdrawals: If used for non-medical purposes, withdrawals are subject to income tax and a 20% penalty.
- Post-65 Withdrawals: Non-medical withdrawals are taxed as regular income but avoid the 20% penalty, making the HSA function similarly to a traditional IRA.
- Rollover Limitations: HSAs are individual accounts and can’t be rolled into IRAs or 401(k)s.
- Contribution Limits: If you have a high-deductible plan, contribute up to $4,150 for individuals and $8,300 for families in 2024, with a $1,000 catch-up contribution for those 55+
Strategies for Using It
- Max it Out
- Pay Out Over Time
- Use it for Unconventional (but valid) Expenses
1. Max it out: Put at least your deductible into it
I’m not interested in maxing out every possible dollar for retirement. However, medical expenses happen now and at any age. You will use the equivalent of your deductible over your lifetime, and probably over the next three or so years, even if it’s just covering expenses such as glasses or contacts, plus normal checkups.
This is literally free money. If you’re employer doesn’t do an FSA or HSA, you can set up one on your own.
2. Pay Out Over Time
I recently had an expense that is both over my deductible, and didn’t qualify for insurance because it was an elective procedure.
Elective procedures can still qualify for HSA (if it’s not something as ridiculous as a BBL).
However, because I didn’t have all that amount in my HSA at the time, what I’m going to do is put it on a card, pay off as much as I can from my HSA this year (after maxing out contribution), and then max out my contribution again immediately next year and pay myself back again.
You can pay yourself back over time from an HSA as long as your records can back it up.
AKA: if you spend 10k on a procedure, you can contribute (and repay yourself) 5k a year and it’s completely legitimate. It doesn’t have to pay back all at once, or in the same year.
As an aside, I would also look into any future medical expenses you may have or expect to have (childbirth, LASIK, etc) and make sure you have that amount saved up.
3. Unconventional Uses
Did you know you can use an HSA potentially for a sauna?
If you have a letter of medical necessity (AKA a doctor’s note) then yes, you can essentially use an HSA for lots of things.
Get a doctor’s note to cover:
- Gym Membership – literally just ask your doctor for this
- Sauna
- Water filtration systems
- Air purification systems
- At-home red light therapy (for Seasonal Affective Disorder)
And lots more. Even weighted blankets for anxiety.
This is a good idea economically if you were already going to buy because you need it. If your doctor will validate the need, then you’re savings taxes.
If you’re getting something big like a sauna, and you were planning on renting out your house when you travel, then what a great extra selling point, and a way to recoup some of the cost.
