How to Maximize the Full Potential of Your HSA

To maximize the full potential of the HSA, you'll want to try to preserve the plan contribution as much as possible and have it grow year over year along with future plan contributions. Remember, additional voluntary contributions are not taxed as they enter the account, they grow over time tax free, and distributions for qualified medical expenses are not taxed.

Here are two important ways to preserve the plan HSA contribution:

Limited Expense Healthcare FSA (LEXHCFSA)—If you are enrolled in an HDHP plan and have an HSA you cannot have a general purpose flexible spending account (FSA). However, you can sign up for a LEXHCFSA for qualified dental and vision expenses. Using the LEXHCFSA helps you maintain your HSA balance and if you have any unexpected expenses, you'll still have your HSA as a back-up.

Premium difference contribution—If you switch to an HDHP plan from a more expensive plan, its tempting to pocket the difference in premium. However, since you've already budgeted for a higher premium from your previous plan, you should consider contributing the premium difference to your HSA. By doing so, you'll be able to use the premium savings for some out-of-pocket healthcare expenses, therefore increasing the chances of keeping the plan HSA contribution invested and growing over time.

Federal employees are on borrowed time to maximize the tax-preferred benefits of a HSA. Once you retire and are on Medicare you no longer can make additional contributions to your HSA. Also, plans that would typically offer an HSA with their HDHP plan instead offer retirees a HRA.