How much should I contribute to my health savings account (HSA) each month?
The short answer: As much as you’re able to (within IRS contribution limits), if that’s financially viable.
If you’re covered by an HSA-eligible health plan (or high-deductible health plan), the IRS allows you to put as much as $4,150 per year (in 2024) into your health savings account (HSA). If you’re contributing to an HSA, and on a family HDHP, the maximum amount that you can contribute is $8,300 per year (in 2024). And for those who are 55 or older, you can contribute an extra $1,000 annually for a total of $5,150 or $9,300 for accountholders on a family plan — with catch-up contributions accepted at any time during the year in which you turn 55.
What is an HSA?
A health savings account gives you greater control of your healthcare expenses and potential savings. It also provides an avenue for you to build a nest egg for retirement and invest. With an HSA, you experience a triple-tax advantage:
Contributions are tax-free
Earnings are tax-free
Withdrawals for eligible expenses are tax-free
Accountholders can truly maximize the potential of an HSA by tapping into its investment capabilities.
What is an HSA contribution?
An HSA contribution is the deposit of funds (for example, from a bank account or your paycheck) into your HSA. HSA participants are advised to contribute the maximum amount each year because the dollars going into these accounts are tax-free. All HSA funds carry over from year to year, and your HSA stays with you even when you change jobs. This ensures accountholders are able to save long term for future medical expenses.
According to Devenir’s 2023 year-end HSA research report, HSAs saw record-breaking asset growth in 2023. By the end of the year, $123 billion in HSA assets were held in over 37 million accounts, showing a 19% year-over-year increase for assets and a 5% increase for accounts.
According to data on the WEX benefits platform, here are the year-by-year average employer contributions to an HSA. Get more benefit trends by clicking below!
What can I use my HSA funds to pay for?
You can use your HSA funds to pay for a variety of eligible medical expenses, including cold medicine, eye drops, copays, and eligible vision/dental care. By purchasing eligible expenses, your funds are not subject to taxes when you withdraw them from your HSA.
If you purchase ineligible expenses, withdrawal of your funds is taxable, and the funds are subject to an additional 20% tax penalty. If you have an HSA with WEX, you can use the eligible expense scanner on your benefits mobile app to scan the bar code of purchase so you know if they’re eligible for your HSA funds.
Preparing for retirement
One oft-cited estimate: A 65-year-old couple retiring in 2020 will need an average of $351,000 in healthcare costs throughout retirement. If you’re uncomfortable contributing the IRS annual max to your HSA through pre-tax payroll contributions, contribute what you are comfortable with.
An HSA also provides the ability to contribute post-tax dollars and take an above-the-line deduction, essentially reducing taxable income for every post-tax dollar that’s contributed to the HSA. Additionally, accountholders have up until the tax filing of the following year to make these post-tax contributions for the previous year.
Consider the savings in HDHP premiums
At first glance, contributing the IRS-allowed maximum to your HSA in one year may sound unimaginable. But when taking into account the premium savings of a HDHP, compared to a traditional health plan, plus tax savings gained through contributing to an HSA, it becomes more realistic.
Need help determining how much you should set aside in your HSA each month? WEX provides a My HSA Planner tool that will help you determine the right amount for you. It takes into account your health plan coverage type, deductible amount, number of years before retirement, monthly healthcare expenses and more.
Watch our below Benefits podcast episode to learn more about the basics of an HSA!
Editor’s note: This post was first published in January 2018. It was most recently updated in March 2024.
The information in this blog post is for educational purposes only. It is not legal, financial, or tax advice. For legal, financial, or tax advice, you should consult your own legal counsel, tax and investment advisers.
WEX receives compensation from some of the merchants identified in its blog posts. By linking to these products, WEX is not endorsing these products.
Contribute the maximum amount: Since the money in your HSA does not expire, it's a good idea to contribute as much as you can each year. The HSA contribution limit for 2024 is $4,150 for individuals and $8,300 for family coverage.
The short answer: As much as you're able to (within IRS contribution limits), if that's financially viable. If you're covered by an HSA-eligible health plan (or high-deductible health plan), the IRS allows you to put as much as $4,150 per year (in 2024) into your health savings account (HSA).
While it's wise to take advantage of your HSA, you'll also need a retirement plan beyond it. If you're unsure of where to start, try working with a financial advisor. What Is the Average HSA Balance By Age? The average HSA balance for a family is about $7,500 and for individuals it is about $4,300.
If you're able, consider contributing the annual maximum amount. The more you can contribute, the more you can benefit from the HSA's potential tax advantages.
What happens if I contribute to my HSA more than the maximum annual limit that the IRS allows? HSA contributions in excess of the IRS annual contribution limits ($3,600 for individual coverage and $7,200 for family coverage for 2021) are not tax deductible and are generally subject to a 6% excise tax.
Because HSAs come with several tax benefits that could save you money, you may want to consider contributing as much as you can to your HSA. There are a few different ways to approach this. Save the difference in plan costs Only those enrolled in HSA-eligible high-deductible health plans (HDHPs) can contribute to HSAs.
The triple-tax-free aspect of an HSA makes it better for tax management than a 401(k). However, since HSA withdrawals can only be used for healthcare costs, the 401(k) is a more flexible retirement savings tool. The fact that an HSA has no RMD gives it more flexibility than a 401(k).
The Bottom Line. For those who choose high-deductible health plans (HDHPs), an HSA has real advantages. It can offset your medical costs, reduce your taxes, and give you a long-term tax-advantaged savings account. An HDHP isn't the best option for everyone, but having one is the only way to get access to an HSA account ...
Contribute enough to cover your expected medical expenses—and then some. Aim to build the account to completely cover one or more years of maximum out-of-pocket costs. Only draw on the account for large or unusual medical expenses, not the routine ones.
To qualify for an HSA, the out-of-pocket max for your health insurance must be $8,050 or less for individuals, and $16,100 or less for families. It's not uncommon to find a high-deductible plan with a larger out-of-pocket max, but that will make you ineligible for an HSA.
The catch? There is a testing period of twelve months. This means you must stay eligible through the end of the next year, or else you will face taxes and penalties. For example, let's look at the individual above who became HSA-eligible on December 1.
If you are retiring at the age of 65 ½ or older, to avoid potential tax issues, you want to STOP YOUR HSA CONTRIBUTIONS so that you have 6 months of NO contributions before you FILE FOR MEDICARE.
What Is the Average HSA Balance By Age? The average HSA balance for a family is about $7,500 and for individuals it is about $4,300. This average jumps up to $12,000 for families who invest in HSAs. Here's a breakdown of the average HSA balance by age.
If you do not have enough money in your HSA to pay for an eligible medical expense you will need to pay for the expense by some other means. Once the money is in your HSA account, you can withdraw the amount that you paid and reimburse yourself.
Health Savings Accounts offer a triple-tax advantage* – deposits are tax-deductible, growth is tax-deferred, and spending is tax-free. All contributions to your HSA are tax-deducible, or if made through payroll deductions, are pre-tax which lowers your overall taxable income.
We generally suggest keeping two to three years' worth of routine medical expenses in cash, cash investments, or similar low-volatility investments within your HSA.
The Bottom Line. For those who choose high-deductible health plans (HDHPs), an HSA has real advantages. It can offset your medical costs, reduce your taxes, and give you a long-term tax-advantaged savings account. An HDHP isn't the best option for everyone, but having one is the only way to get access to an HSA account ...
Contributions below the maximum: Relative to 2022, average HSA contributions increased. Average individual contributions rose to $1,962, while the average employer contribution decreased slightly to $762.
Introduction: My name is The Hon. Margery Christiansen, I am a bright, adorable, precious, inexpensive, gorgeous, comfortable, happy person who loves writing and wants to share my knowledge and understanding with you.
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