My Last Minute Tax Break: HSA Contribution

Want a sweet last-minute tax break? Contribute to your Health Savings Account.

I love my Health Savings Account. Not only is there a tax deduction involved, but the money can be withdrawn tax-free at anytime, as long as you use it for qualified health care expenses. You get a tax deduction, and your money grows tax-free.

In the past, I hadn't taken advantage of the ability to contribute to my HSA as I should, and my accountant pointed out to me that I could put that money to better use. And, because of the way the HSA works, I got a last-minute tax break, lowering my tax bill — even though my contribution was made well after December 31.

Today, I automatically contribute to my HSA, making a monthly contribution that maxes out my available contributions.

HSA Contribution for a Last-Minute Tax Break

There's nothing more last minute than a tax break you can claim after the end of the year. As with the Traditional IRA, it's possible to contribute to your Health Savings Account for the previous year until Tax Day.

For 2023, the contribution limit for an individual is $3,850 (for 2024 it's $4,150). Family contributions are $7,750 for 2023 and $8,300 for 2024. Those 55 and older can make an extra contribution of up to $1,000.

In order to claim the deduction, all my contributions need to be made by Tax Day of the following year. In order to properly assign the contribution, though, it's important to specify that you are making a “previous year” contribution.

(I use Lively for my HSA. It connects seamlessly to Charles Schwab for investing purposes.)

If you send the contribution in by check, call your custodian to find out how to send in the check. You might need to fill out a form or write something specific on the memo line. When you take care of it electronically, there is often an online checkbox. Before you hit the “submit” button, you want to make sure that you truly have checked the correct box.

It's important to specify which year the contribution belongs to since over-contributing in one year can lead to penalties. It's better to make contributions throughout the year for cash flow reasons than it is to make a last-minute contribution. However, if you've run the numbers and you can benefit from a last-minute tax break, and you have the cash to make it happen, you might as well take advantage of it.

Tax Savings and Better Financial Planning

With an HSA, you can get a last-minute deduction (even if you wait until just after the first of the year) and prepare for a better financial future.

Some of the ways I like to use my HSA for the present and the future include:

  • Pay for current healthcare costs with tax-free dollars
  • Once my “main” account reaches $500, anything over that is transferred into an investment account
  • I choose broad-based index products and dividend investments for my long-term HSA portfolio
  • The money I invest grows and can be used later for:
    • Healthcare costs in retirement (tax-free)
    • Backup retirement account that can be accessed as another IRA at age 65 (tax-deferred)
  • If I need more money for something (such as braces for my son or new glasses), I plan ahead and sell investments in the account and transfer them

It's important to note that your HSA investment account will be completely separate from any other tax-advantaged or taxable account that you have. You don't want to mix funds. And you want to make sure that you use the funds ONLY for qualified expenses if you want to avoid taxes and potential penalties.

You still have time to open an HSA and make a contribution. Consider how it might help you save money on taxes today—and how it can help you better plan for your future next year and in years to come.

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