Advantage of Maxing Out Yearly HSA Contribution Amount

Take advantage of your HSA by contributing the maximum amount allowed each year.

Each year the IRS sets a maximum amount you can contribute to your Health Savings Account. You may be curious if you should contribute that full amount or not. What are the advantages of doing so, and what are you risking by not making the full contribution?

If you’re able to make the maximum contribution each year, then it’s suggested that you do so. Some years you may need to use more of your HSA contributions than other years. Just remember, there’s no yearly minimum you have to spend from your HSA and your entire HSA automatically rolls over each year. Some tax advisors even inform clients to max out their HSA contributions each year before adding to their 401(k)!¹.

The Triple Tax Advantage includes three main reasons why it’s wise to max out your annual HSA contribution:

  1. Your contributions may be 100 percent tax-deductible, meaning contributions can be deducted from your gross income.
  2. All interest earned in your HSA is 100 percent tax-deferred, meaning the funds grow without being subject to taxes unless they are used for non-eligible medical expenses.
  3. Withdrawals from your HSA are 100 percent tax-free for eligible medical expenses (i.e., deductibles, copays, prescriptions, vision, and dental care).

Maxing out your HSA each year easily allows your funds to grow over time. Unlike regular savings accounts, an HSA allows you to invest funds in stocks, bonds, and mutual funds. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2020 may need approximately $295,000 saved (after tax) to cover health care expenses in retirement². When you contribute the maximum amount each year, you can build yourself a considerable nest egg that you can use throughout the rest of your life.


1Why You Might Want to Fund an HSA vs. an IRA, The Balance

2How to plan for rising health care costs, Fidelity

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