Should You Save in an HSA in 2022?

Funding a health savings account could be a smart move.

You may have different savings goals for 2022, like completing your emergency fund and making progress on building a retirement nest egg. But there's another thing you may want to save for specifically -- healthcare.

Even Americans with health insurance routinely wind up loaded with medical bills. If you don't set money aside to cover them, they could easily lead you into debt.

You have options when it comes to saving for healthcare. You could pad your regular savings account or put money into a flexible spending account (FSA) through your employer. But if you're eligible for a health savings account (HSA), it could pay to open one in 2022.

The benefits of an HSA

HSAs are very flexible -- much more so than FSAs. With an HSA, you don't need to decide ahead of time how much money you want to contribute. You may put in a few hundred dollars in January and decide that you want to keep doing so every month. With an FSA, you're forced to commit to a preset savings amount before your plan year even begins.

Furthermore, if you've ever saved in an FSA, you may have had that moment of panic when you realize the year is almost over and you still have money in your account you need to spend or give up. HSA funds never expire, so you can carry that money into the future if you don't need all of it immediately. Plus, whatever money you don't need right away can be invested so it grows into a larger sum.

Finally, HSAs offer multiple tax benefits. Contributions are made with pre-tax dollars, so if you put in $2,000, that's $2,000 in earnings you won't be taxed on. Investment gains in your HSA are tax-free, and withdrawals are tax-free, provided you use that money for qualified medical expenses.

What's the downside of an HSA?

Really, there isn't one, except for the fact that not everyone can participate in an HSA. To qualify, you need to be enrolled in a high-deductible health insurance plan. If you're not sure your plan qualifies, you can check with your benefits administrator. In 2022, you'll need a minimum deductible of $1,400 for self-only coverage and a family deductible of $2,800 or more to participate.

Should you fund an HSA in 2022?

If you don't have money socked away for healthcare expenses and qualify for an HSA, then it pays to take advantage of one in the new year. Of course, your first goal should be to build yourself an emergency fund -- enough money in savings to pay for at least three months of living costs.

While you can take an HSA withdrawal to cover a hospital bill, you can't remove funds from an HSA to pay for a surprise home repair (well, technically you can, but you'll be taxed and penalized heavily). But if your emergency fund is solid, putting money into an HSA is a smart move.

In 2022, you can contribute up to $3,600 for self-only coverage and up to $7,300 for family coverage. If you're 55 or older, whichever limit applies to you increases by $1,000.

The amount you think you'll spend on healthcare in 2022 may fall below these limits. But it still pays to hit the limit you're eligible for, because again, those funds will never expire. And contributing to an HSA will shield more of your money from the IRS.

Furthermore, you might think you'll only need $1,500 to cover your medical bills for the year, only to wind up needing surgery and spending $2,500. If you can afford to err on the side of overfunding your HSA, it pays to do it.

Once you turn 65, you can take money out of your HSA for any reason and avoid penalties (you'll just pay taxes on withdrawals for non-medical expenses). There's practically no risk to putting the most you can into one of these accounts.