The 5 HSA Mistakes Too Many People Make

by Andrew Schreiber 25. February 2016

More people are signing up for Health Savings Accounts (HSAs) than ever before. As of the middle of last year, about 14 million Americans were enrolled in one, up 25 percent from 2014. Indeed, the current requirements to qualify for an HSA as an individual are fairly simple: you must be covered under a high deductible health plan (HDHP); that you have no other health coverage (with a few straightforward exceptions); that you aren’t enrolled in Medicare; and that you can’t be claimed as a dependent on someone else’s tax return. And the benefits of participating are enormous: your contributions to an HSA are tax-deferred and portable. 

How to best manage an HSA and your contributions to it, however, are somewhat more complex.

As more employers and individuals turn to HDHPs because of their lower premiums, more individuals are discovering that they are qualified for an HSA. If you’re among them, this list will help shed light on some of the most common mistakes people make with HSAs, and how to avoid them.

Contributing Too Little, Or Too Much

Determining how much to contribute to your HSA is different for everyone, of course, and variables include everything from how much you’re making (read: how much you can afford to contribute) to your current and anticipated medical expenses. The contribution limit for individuals is $3,350 and $6,750 for families in 2016.

One factor in deciding how much to contribute is your own risk tolerance. How concerned or unconcerned do you feel about the possibility of a catastrophic health event that may never occur? Those who feel anxious about the potential medical costs associated with, for example, getting into a car accident, will want to consider contributing a robust amount to their HSA. Those more comfortable with betting they’ll continue to stay healthy, however, or have other significant and pressing monthly expenses, will consider contributing less.

Regardless of how much you choose to contribute, many experts agree that participating is a good idea, since HSAs can be viewed as another way to save for retirement, and because many employers that offer HSAs (by some estimates, as many as 84 percent) make tax-free contributions to employees’ accounts.

Losing Track of the IRS’s Contribution Restrictions

The IRS will penalize you if you contribute too much to your HSA, period. The penalty is a 6 percent excise tax, which accrues every year the excess goes uncorrected. That’s why it’s important to stay on top of how much you’re allowed to contribute from year to year, because these figures do change. For example, the maximum contribution for a family HSA increased by $100 this year. Fortunately, there are ways of correcting the mistake if you have exceeded the maximum contribution amount. You should contact your HSA provider as soon as the mistake is noticed.

Confusing HSA Rules with FSA Rules

There are major differences between HSAs and Flexible Spending Accounts (FSAs), but one wouldn’t be alone in confusing their specific qualities. Among the big ones you’ll want to pay attention to:

Your hard-earned HSA funds can be rolled over to subsequent years’ savings. That is NOT the case with FSA funds, which require participants to spend down the money in their accounts before the end of the year or forfeit those funds entirely.

Your HSA will follow you when you change jobs. With few exceptions, this is not the case with money in your FSA fund.

HSA funds are more flexible in the sense that you can change the amount you choose to contribute at any time. With FSAs, you can only change your contribution amount during open enrollment or under other very specific circumstances.

Misusing HSA Fund Money

Be careful not to swipe that HSA debit card for anything except medical expenses. The IRS frowns on the misuse of HSA funds — to the tune of a 20 percent penalty for non-qualified expenses and liability for income taxes upon withdrawing funds.

Not Correcting Mistaken Contributions or Withdrawals

Fortunately, the IRS accounts for the fact that over-contributing and mistaken charges happen to the most well-intentioned HSA participants, which is why there is recourse if you stumble into one of these circumstances. Say, for example, that you pay a medical bill using funds saved in your HSA that you are later reimbursed for because you didn’t realize that expense was fully covered by your insurance. The money in such cases must be returned, but there is no penalty. It’s that simple.

When used correctly, HSAs provide an excellent option for individuals participating in HDHPs. But determining how much you wish to contribute per month, what expenses can be covered by HSA funds, and more can be complicated to unravel. Resources like our “HSA: Is It Right for You?” guide can help you determine what will work best for you. Or, reach out —we’re here to help you maximize your HSA’s potential.

The Cost of Valentine's Day

by Jhonell Campbell 11. February 2016

With Valentine's Day around the corner many lovebirds have already made plans for the special day. If you're still trying to decide what to do or buy for your loved one, we're here to help. Whether you prefer a relaxed night in or an extravagant night out, we've broken down the costs of the most popular Valentine's Day gifts and activities.

Three Ways to Save in 2016

by Jhonell Campbell 28. January 2016

Wallet DumpThe New Year usually comes with an urge to create better habits. However, breaking bad habits can be hard, especially when they involve spending. Many blogs will tell you that budgeting, tracking and decreasing your spending are the keys to saving but these methods can be time consuming and difficult especially if you’re an impulse spender.  Over the years the following four methods have forced me to save despite my lack of discipline to do so.

Set Your Savings

If you’re going to spend you might as well save while doing it. Set Your Savings is a convenient way for heavy spenders to unconsciously save. The Set Your Savings service allows you to transfer a designated amount of money into a savings account each time you use your debit card. Whether it's 10 cents or a dollar for each swipe, you are sure to have a good chunk saved before you know it. Stop into your local branch to begin setting your savings today. 

Automate Transfers

Most banks give you the option of setting up an automatic monthly transfer from your checking to your savings account. Upon opening my accounts, I arranged for $25 each month to be transferred from my checking to my savings account. I barely notice the missing funds and without realizing it I was able to save $300 for the year.

Wallet Dump

It can be a real pain to count change during transactions. However, loose change is still money and it can add up overtime. I became inspired to start saving my change after finding a few pennies in my room four months ago while cleaning. At the end of each week I dump the change left over in my wallet into a piggy bank. Once the piggy bank is full, I’ll take the money to my bank’s coin and deposit the funds into my account.

While it’s difficult to break a bad habit overnight, hopefully these tips give you a great starting point to accomplish your savings goals for 2016. 

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