Average Health Care Costs

• Since the purpose of a health savings account is to pay for health care expenses, it pays to have some idea how much you spend on medical care in a typical year. While medical costs can be unpredictable, especially if you suffer a major illness or an accident, you can predict your routine health care spending. For instance, you can add up the cost of your annual physical, routine doctors' visits, vaccinations and prescriptions to get an estimate of how much you can expect to pay for your health care in the average year. Funding your HSA with at least that much can save you money in the long run since you will be paying for your health care with pre-tax dollars. The yearly deductible for your high deductible health plan is also a major consideration. For instance, if your yearly deductible is $5,000, you would want to continue funding your HSA until it contains at least that much money.
  
  

Payroll Deduction

• If your health savings account is held by your employer, you will contribute to your HSA through payroll deductions. This money comes out of your paycheck on a pre-tax basis, which lowers your federal taxable income and your income tax liability. Payroll deductions are a relatively painless way to contribute to your HSA since the money comes out of your paycheck before you have a chance to spend it. If your employer contributes to your HSA as well, you can boost your HSA balance even more.
  
  

Tax Planning

• Contributing money to a health savings account can save you a lot of money on your taxes, so you might be able to contribute more than you think. If you plan to open a new HSA or contribute to an existing one, take a few minutes to run your tax numbers at various contribution levels. Just use your favorite tax preparation software and plug a number of contribution levels in, then see how those rising contribution levels can impact your tax bill. You might find that the tax money you save justifies making a higher contribution than you had originally planned.
  
  

Rollover Funds

• One of the advantages of health savings accounts compared to flexible spending accounts and other plans is that the money rolls over from year to year. If you do not spend all of the money in your HSA during the current year, the money simply rolls over, remaining available for future spending. This means you can start with a small contribution if that is all you can afford and slowly add more money over time.