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.
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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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