There are lots of advantages to an HSA. But you should keep these three potential pitfalls in mind before you decide to open an account:
- Contributing when you are no longer eligible – In 2020, you can participate in an HSA if you have a high-deductible health insurance policy with an annual deductible of $1,400 or more for single coverage or $2,800 or more for family coverage. At the same time, your maximum annual out-of-pocket costs must be $6,900 as an individual and $13,800 as a family. If you do not meet these requirements, you are not eligible to contribute to an HSA.
- Using HSA funds for nonqualified medical expenses – Although the definition of qualified medical expenses is fairly liberal (including vision, dental, and sunscreen products, for example), you generally can’t use this money to pay for elective procedures or cosmetic surgeries. Be careful of the rules before you spend any funds.
- Spending down your account balance each year – Unlike Flexible Spending Accounts, in which you have to use the funds in the account or lose them, you can carry over a balance in an HSA each year. This makes them a good complement to your retirement savings account — and a good reason to fund them each year.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.