 TITLE: Should I Max Out My HSA Contributions? CONTENT: What Is an HSA?\n---------------\nAn HSA is a tax-advantaged savings plan you can use to cover certain health care costs. You put pretax income into the plan and can withdraw it tax-free if you use it for qualified medical expenses. These include health insurance deductibles, copayments, coinsurance, dental and vision care, prescriptions, over-the-counter medications and more.\nYour employer may offer an HSA, and may even contribute to it or match a percentage of your contributions. You can also open an HSA yourself with a financial institution—such as a bank, credit union or institution that manages IRAs—that serves as an HSA trustee.\nTo open an HSA, you must participate in a high-deductible health insurance plan (HDHP) and have no other health insurance (although there are exceptions made for specialized health insurance such as dental and vision care). For 2021, the IRS defines an HDHP as one with a deductible of $1,400 or more for an individual or $2,800 or more for a family.\nHSAs are similar to flexible spending accounts (FSAs) that allow account holders to set aside pretax money and withdraw it tax-free to use for health care and dependent care expenses. However, there are some important differences between the two:\n*   Unlike HSAs, FSAs are only available through your employer.\n*   If you don't spend your FSA money by the end of the plan year, you can lose it—although some employers give you a grace period of up to two and a half extra months to use it or let you roll over up to $550 for the following year. If you don't use your HSA money, however, 100% of the funds roll over to the next year. The amount rolled over doesn't count toward the following year's contributions. Recent federal law allows more flexibility with FSA limits if your employer chooses to adopt them.\n*   Since your FSA is tied to your employment, you may lose the funds when you retire or leave your job. Your HSA funds always belong to you, even if you retire or leave your employer.\n*   FSAs can be used only for qualified expenses. HSA money can be used for non-qualified expenses, but the amount you withdraw will be subject to income tax as well as a 20% additional tax. Once you're 65, you can use your HSA for non-qualified expenses. You'll still pay taxes on these withdrawals, but no additional tax penalties.\n*   Unlike FSAs, HSAs can be invested in mutual funds or other investment vehicles and grow tax-free. END