How are you feeling about your finances going into 2020? Are you prepared for the future and maximizing your 401k or HSA, or are you lost and confused?
If you are closely aligned with the latter response, you are not alone.
According to a Charles Schwab survey, only 38 percent of millennials feel financially stable. Furthermore, the study also notes that millennials spend an average of $478 a month on “nonessential” purchases (think UberEats, concerts, vacations and other luxury items) which is more than the $359 per month spent by baby boomers.
So what gives? Well, one part of taking control of your finances includes planning for your future. A great way to plan for your future is to make the most of your health savings account (HSA).
Here are five simple tips from some experts on how to maximize your HSA in 2020.
1. Research the difference between an FSA and an HSA
It is truly important to know not only how you are saving for the future but what your options are. Flexible Savings Accounts (FSA) and HAS’s are two types of accounts for eligible medical expenses and each account has their own set of benefits.
For example, a FSA is a flexible spending account set up by an employer, which uses an employee’s money to fund health care eligible expenses. The caveat is that the employee must use the funds by the end of the year or they lose their money. On the contrary, an HSA does not have an expiration and unused funds roll over every year.
There are several other differences, such as when you can change your contribution amounts or penalties for withdrawing funds, so make sure you do a little digging before determining which plan works best for you.
2. Contribute the maximum that you can to your HSA
Finance guru and author of Money Matters, Veronica Karas, advises you to contribute the maximum amount to your HSA account. The IRS is responsible for setting the HSA contribution guidelines. Per the IRS, the maximum contribution amount for the year 2020 is $3,550 for individuals and $7,100 for families.
3. Invest your HSA funds
Karas also advises you to start investing your HSA funds once you have over $1,000 in your account. Many HSA plans allow you to invest in stocks, bonds, ETFs, and other investments through a brokerage account. In return, this means your investment is tax-free, which according to Karas, is a huge win!
4. Take advantage of employer contributions
Finance director John Backiel recommends checking with your employer to see if they match contributions to your savings account to maximize your funds. While employer contributions are optional, many employers provide some sort of funding of their employees’ accounts.
5. Don’t use the money right away
Again, Karas recommends waiting until you are much older to use health savings account funds. She recommends planning on waiting until your retired to use the money.
“It is triple tax-free towards any health expenses not covered by Medicare. So you contribute tax-free, it grows tax-free, and then it is tax-free when you use it towards eligible expenses. The longer you let it grow, the better!”
DISCLOSURE: These tips are all really helpful – however, it is always advised to meet with a financial advisor to help you decide which option is best for you and your family’s finances.