3 Rules to Follow With Your HSA

Healthcare is a major expense at any age, and it's important to have money set aside to cover it. In this regard, you have options. You could pad your savings account to pay for healthcare costs, or you could open an HSA, or health savings account.

If you're going to go the latter route, it's important to make the most of your HSA. Following these rules is therefore essential.

1. Check your eligibility every year

HSA eligibility isn't a given. Your health insurance plan needs to meet certain requirements. But it's important to check your HSA eligibility every year, especially as your health coverage changes and as HSA requirements change. It may be that you weren't able to fund an HSA at one point, but you are now.

In 2024, for example, your health insurance plan will need to come with a minimum deductible of $1,600 if you have self-only coverage, or a minimum deductible of $3,200 if you have family coverage. It may be that your health plan isn't compatible with an HSA right now, but if your deductible increases in 2024, that could change.

2. Leave your funds alone if you can

The great thing about putting money into an HSA is that you get the option to invest funds you don't need to withdraw right away. That means you have the potential to grow your balance into a larger sum.

Of course, this doesn't mean you should drive yourself into credit card debt to cover healthcare costs when you have money sitting right there in your HSA. But let's say you have an HSA balance of $1,200 and you receive a medical bill for $180. You may be inclined to dip into your HSA to cover that cost. But if your paycheck can easily cover it, it makes sense to leave your $180 in your HSA and keep it invested.

3. Increase your contributions as annual limits rise

HSA contribution limits tend to rise from one year to the next. Case in point: This year, the limit for individuals is $3,850, but it's increasing to $4,150 in 2024. And the limit for families is rising from $7,750 to $8,300.

HSA contributions go in on a pre-tax basis, so the more money you put into your account, the more of your income you're able to shield from taxes. And, the more you're able to invest so you can grow your balance.

So pay attention to HSA limit increases -- and aim to ramp up if you're able to do so. You should also know that once you turn 55, you're allowed to put an extra $1,000 into your HSA on top of what the annual limits allow for.

An HSA is an extremely useful savings tool because it allows you to sock funds away not just for near-term healthcare expenses, but future ones as well. Do your best to follow these rules so you're able to get the most benefit out of your HSA.