Contributing to an HSA is a No Brainer

What is an HSA?

A Health Savings Account (HSA) is a financial tool used to hold funds for future qualified medical expenses.  The purpose of the account is to provide a tax benefit to those individuals with high deductible health insurance plans.  Therefore, one of the eligibility requirements to contribute to an HSA is that you must be covered by a high deductible health plan.  A high deductible health plan has a minimum and maximum annual deductible.  For 2020, the minimum deductible is $1,400 for individuals and $2,800 for families.  The maximum deductible is $6,900 for individuals and $13,800 for families.  Also, HSA funds must be spent on qualified medical expenses.  A few common examples include dental treatment, eye exams, and prescription drugs.


  • Tax-Free Contributions:  amounts withheld from wages and amounts contributed by employers to an HSA are not included in taxable income
  • Tax-Deductible Contributions:  contributions to an HSA from post-tax personal funds are tax-deductible
  • Flexible Contribution Options:  both employers and employees can contribute to an individual’s HSA
  • Annual Carryforward:  unused HSA funds can be carried forward to the following year with no tax or penalty
  • Tax-Free Distribution:  HSA amounts used to pay for qualified medical expenses are not taxable
  • Tax-Free Investment Earnings:  some HSA’s allow unused funds to be placed in a variety of investment products that include stocks, ETF’s, and mutual funds.  Earnings on these investments grow tax-free
  • Portability:  HSA funds remain available even if you change insurance plans, change employers, or retire
  • Catch-Up Contribution:  if you are 55 years old or older at the end of the tax year, your contribution limit is increased by $1,000
  • Age Threshold:  once you turn 65 years old the 20% penalty is removed.  You may spend your HSA funds on anything you choose without paying the penalty.  However, you will have to pay income tax on withdrawals if you don’t use it for qualified medical expenses


  • High Deductible Requirement:  if you do not have a high deductible health plan you cannot contribute to an HSA
  • Pressure to Save:  individuals are hesitant to receive healthcare to save HSA money
  • Significant Medical Expenses:  individuals who consistently have large medical expenses should not seek a high deductible plan.  These types of patients are better off with an insurance plan that charges a higher premium but covers a larger portion of medical costs
  • Fees:  HSA providers sometimes charge annual fees and transaction fees
  • Recordkeeping:  proper records need to be maintained to evidence withdrawals were used for qualified medical expenses
  • Penalties:  distributions that are not for qualified medical expenses are subject to income tax and 20% penalty
  • Contribution Limit:  for 2020 the maximum annual contribution is $3,550 for individuals and $7,100 for families


If you have money available to fund an HSA, are covered by a high deductible health plan, and do not regularly incur significant medical expenses, it is a no brainer to maximize your HSA contribution in 2020.

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DISCLAIMER: This blog is provided for informational purposes only and is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant. Presentation of the information in this article does not create nor constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, the evolving landscape surrounding these topics is supported by regulations or guidance that are subject to change.

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