insurance

Strategies for Your Health Savings Account

Many HSA plans let you invest in mutual funds or stocks, not just low-interest savings accounts.

I’m trying to decide how much money to contribute to my health savings account and my 401(k) for 2014. Where should the HSA be on my list of priorities? --W.T., Syracuse, N.Y.

Contribute to the HSA as soon as you have contributed enough to your 401(k) to get the employer match, says William Applegate, of Fidelity. Health savings accounts provide a triple tax break that’s tough to beat: Your contributions are tax-deductible (or pretax if made through an employer’s plan); the money grows tax-deferred; and it can be used tax-free for out-of-pocket medical expenses in any year.

To get those breaks, you must have a health insurance policy with a deductible of at least $1,250 for individual coverage or $2,500 for families in 2014. You can contribute up to $3,300 for individual coverage or up to $6,550 for families (plus $1,000 if you are 55 or older) for the year.

You’ll get the biggest benefit if you pay your deductibles and co-payments with other money and leave the cash in the HSA to grow tax-free for the future -- say, to cover health costs in retirement. Match your HSA investments to your time frame. Many plans let you invest in mutual funds or stocks, not just low-interest savings accounts.

You can’t make HSA contributions after you sign up for Medicare, but you can use money in the account tax-free at any age for medical expenses, including premiums for Medicare parts B and D and Medicare Advantage (but not medigap), and a portion of long-term-care premiums.

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