6 Ways To Maximize Your HSA Contributions in 2025 | Global News Avenue

If you want to save money that can grow now and be used later, you might do better than Health Savings Account (HSA). As the name suggests, an HSA is a tax-advantaged savings account that you can use to set aside pre-tax money for medical expenses.

By using HSA funds to pay deductibles, copayments, coinsuranceand other qualified medical expenses (excluding insurance premiums), you can save money on out-of-pocket medical expenses. Some people also use them as a means of saving for retirement.

Here’s how HSAs work and how to get the most out of them in 2025.

2025 HSA Contribution Limits and Deadlines

The HSA must be established by a qualified HSA trustee (such as a bank, credit union, or insurance company). To be eligible to contribute to an HSA, you must register High Deductible Health Plan (HDHP). You cannot be enrolled in Medicare or another health plan or claimed as a dependent on someone else’s tax return.

Contributing to an HSA lowers your taxable income, which may reduce your tax burden. As with most tax-advantaged accounts, there are legal limits on the amount you can contribute to an HSA each year. The maximum contribution limit for 2025 is significantly higher than last year. In 2025, you can contribute up to $4,300 for individual coverage and $8,550 for family coverage.

Generally, you (or your employer) must contribute to an HSA by the tax filing deadline for that year. Therefore, for the 2025 tax year, the payment deadline is April 15, 2026.

Tax Benefits of HSAs

HSAs are a popular way to save investment tools Benefit from multiple benefits. First, all donations are considered “pre-tax,” so every dollar you contribute reduces your taxable income. Any employer contributions to your HSA (including contributions through a cafeteria plan) also do not count toward your gross income.

Another major benefit is that HSA assets grow tax-free. So you don’t have to worry about capital gains or other taxes. Distributions are also tax-free when used for qualified medical expenses.

unlike Flexible Spending Account (FSA)which has a “use it or lose it” rule and you can keep your money in an HSA for as long as you want. Finally, an HSA is portable, which means it will stay with you if you change employers or leave the workforce.

How to Maximize Your HSA Benefits and Contributions in 2025

If you’re wondering how to best use your HSA to maximize your benefits, consider these strategies:

1. Maximum allowed amount of contribution

The more money you put into an HSA, the more your money will grow. So contribute the highest amount possible each year to get the most out of your HSA. Remember, the maximum limit also includes employer contributions. This means that if your employer contributes money to your HSA, you’ll need to subtract that amount from the annual maximum to find how much you can contribute in a year.

2. Match employer contributions

If you’re lucky enough to have an employer that contributes to your HSA, matching that contribution amount is one of the best uses of an HSA. much like a 401(k)employer contributions to an HSA are essentially free money, making it a smart way to maximize the value of your account.

3. Pay your health plan deductible

Your health plan deductible is the amount you must pay for medical expenses before your coverage is effective. In 2025, deductibles must be at least $1,650 for individuals and $3,300 for families. If you have to meet a deductible, using pre-tax funds from an HSA will save you money overall and lower your taxable income. Note that some HDHPs have higher deductibles than the minimum, so check your plan for details.

4. Provide your health plan with maximum out-of-pocket costs

this Out-of-pocket maximumor out-of-pocket limit, is the most you have to pay each year for covered medical expenses. After this amount, the insurance company will pay 100% of the covered health care services. In 2025, out-of-pocket expenses are capped at $8,050 for individuals and $16,100 for families. Again, check your health plan to find out the exact out-of-pocket cap.

Depending on the annual contribution limit, it may take more than a year to reach this amount. However, setting aside pre-tax money for your potential out-of-pocket expenses can ultimately save you money on health care costs.

5. Long-term investment

Another smart way to use an HSA is to contribute the maximum amount allowed and then not touch the money until retirement (or for as long as possible). Kim Curtis, A certified financial planner and partner at Cerity Partners emphasizes, “These accounts are best used as retirement savings and investment vehicles rather than ‘checking accounts.’ You can save in an HSA today while also saving through salary or other savings Pay current out-of-pocket expenses.”

This is a smart strategy because HSA investments grow tax-free. Let’s say you contribute $1,500 a year to an HSA for 20 years. That’s $30,000 out of your own pocket. But if you invest that money over decades, it could grow to more than $100,000. So you’ll have at least $70,000 tax-free to spend on health care during retirement when you need the money most.

6. Reimbursement of eligible medical expenses

Forgoing HSA spending could be a great way to boost retirement savings, says Zach MarcotteCFP and Director of Financial Planning at Berkshire Money Management. “Invested funds can be withdrawn later, tax-free for qualified health care expenses. Until then, save money from medical expenses Expenses paid from other sources so that they can reimburse themselves in the future without having to pay any taxes. ”

How to invest your HSA funds

The funds in your HSA can be kept as cash. However, the key to maximizing your tax-free growth account is investing your contributions wisely. Retirement Investment Options with HSAs Very similar to other retirement accounts such as a 401(k) plan or IRA. For example, HSA owners can invest in securities, including mutual funds, stocks, bonds, and ETFs.

“If you’re going to invest, you need to evaluate your risk tolerance and time horizon like any long-term investment,” he said. asked RapacheCFP and Senior Consultant on the Advisory Group. “Because you’re relying on these funds to pay for future medical expenses, you may want to avoid highly concentrated positions or anything that’s too risky.”

Marcotte further advises, “If your employer’s HSA does not offer the ability to invest, you are free to transfer the balance to a new provider.”

How to use your HSA funds to pay for qualified medical expenses

You can take tax-free distributions from your HSA to pay or reimburse qualified medical expenses incurred after the HSA was established. If you receive distributions for other reasons, the amounts you withdraw will be subject to income tax and may be subject to an additional 20% tax. All distributions from an HSA must be reported using Form 8889.

You can use HSA funds to pay for deductibles, copays, coinsurance, and other qualified medical expenses. Generally speaking, qualified medical expenses include expenses you pay for yourself, your spouse, or someone you claim as a dependent on your tax return.

Common qualified medical expenses may include, but are not limited to:

• abortion
• acupuncture
• Alcoholism hospitalization
• ambulance service
• family planning
• prosthesis
• denture
• body scan
• Eye examination
• Glasses or contact lenses
• dental treatment
• home care
• hospital services
• prescription drugs, including insulin
• hearing aid
• laboratory fees
• long term care services
• X-ray examination
• wheelchair

Whether you receive reimbursement or direct payment using an allotment, keep the receipts—proper documentation may be required to demonstrate adequate use of HSA funds.

Rapacz offers another way to use HSA funds to pay for qualified medical expenses: a lifetime IRA-to-HSA rollover. Account holders can roll over more than $4,300 for a single policy and more than $8,550 for a family policy, add additional contribution limits if they are over 55, and use the money for tax-free medical expenses.

Plan for future health care costs

Even for healthy people, medical costs often increase with age. Older adults need more screening and preventive exams, often with dental or vision care. Although people aged 55 and above account for only 31% of the total population, they accounted for 55% of total medical expenditures in 2021. According to Fidelity Retiree Health Care Cost Estimates, a single person at age 65 may need to save about $165,000 (after taxes) by 2024 to pay for health care in retirement, a 5% increase from 2023.

With this in mind, HSAs are a critical tool Plan ahead for future medical expenses. “By putting designated savings into an HSA, you can avoid unpleasant surprises when big health care bills arise,” says Curtis. “And you’ll pay for it with tax-free money, reducing the impact of future health care costs.”

After age 65, you can begin using your HSA just like any retirement account. If you withdraw funds from your HSA for non-medical expenses, the 20% penalty no longer applies. However, you will need to pay income tax on the withdrawals.

bottom line

HSAs offer tremendous benefits for managing health care expenses and building retirement savings. To get the most out of your HSA in 2025, learn about contribution limits, deadlines, investment options and potential tax implications. Maximize contributions, consider employer matches, and use pre-tax funds to pay for qualified medical expenses.

HSAs are a powerful tool for financial security and flexibility. As health care costs continue to rise, leveraging the potential of an HSA can help you take control of your current financial health while leveraging long-term growth to ensure future stability.