A Well being Financial savings Account (HSA) is commonly praised as one of many smartest monetary instruments obtainable, providing triple tax advantages and long-term financial savings potential. However there’s a catch: should you miss the tremendous print, particularly the deadlines, that “sensible transfer” can flip right into a silent monetary lure.
Yearly, numerous People miss out on 1000’s of {dollars} attributable to late contributions, misunderstood rollover guidelines, and forgotten reimbursements. The flexibleness of an HSA solely works should you comply with its construction. And plenty of of its deadlines? They’re agency. Let’s break down the seven greatest HSA deadline traps that would quietly wipe out your financial savings—actually in a single day.
1. Lacking the Annual Contribution Deadline
It’s probably the most widespread (and dear) errors: assuming you might have till the tip of the calendar yr to contribute. In actuality, you might have till Tax Day, normally round April 15, to make HSA contributions for the earlier tax yr. However as soon as that date passes, there’s no going again. You lose your likelihood to decrease final yr’s taxable earnings or develop your financial savings tax-free.
Tip: Set reminders in January and February to evaluate how a lot you’ve contributed and plan to prime it off effectively earlier than the IRS deadline.
2. Forgetting to Use HSA Funds for Certified Medical Bills
An HSA offers you the ability to withdraw funds tax-free for certified medical bills. However should you mistakenly use the cash for non-eligible prices and don’t catch it by tax submitting time, you’ll face a 20% penalty plus earnings taxes on that quantity. Even worse? The penalty is non-negotiable until you’re over age 65 or develop into disabled.
Keep away from the lure: All the time hold digital or bodily receipts, and double-check the IRS’s checklist of certified medical bills earlier than swiping that HSA debit card.
3. Failing to Reimburse Your self in Time
One neglected advantage of an HSA is that you just don’t have to reimburse your self for medical bills immediately. You possibly can wait years, as long as the expense occurred after your HSA was opened. However many individuals wait so lengthy that they neglect in regards to the expense altogether, or they lose the documentation. With out correct proof, you possibly can’t legally withdraw funds tax-free, even when the expense was legitimate.
Your most secure transfer? Arrange a system to trace medical receipts and create a yearly reminder to evaluate unreimbursed bills. If you happen to don’t doc it, the IRS will assume it didn’t occur.
4. Lacking the 60-Day Rollover Window
Did you alter HSA suppliers? If you happen to manually withdraw the funds to switch to a brand new custodian, it’s essential to full the rollover inside 60 days. In any other case, your entire quantity is handled as a distribution topic to tax and that dreaded 20% penalty. And right here’s the kicker: You possibly can solely do one rollover per 12-month interval. One mistake and it may value you 1000’s.
To keep away from this, go for a trustee-to-trustee switch each time potential. It bypasses the chance totally.
5. Not Updating Beneficiaries in Time
Whereas this isn’t a tax deadline, it might have big monetary penalties. If you happen to go away with cash in your HSA and haven’t named a correct beneficiary, your account might develop into a part of your property and lose all its tax advantages. In case your partner is the beneficiary, the HSA stays tax-advantaged. If not, your entire quantity is handled as taxable earnings for the beneficiary within the yr of your loss of life.
The answer is easy: Overview your HSA account yearly and ensure your beneficiary designation is updated, particularly after massive life occasions like marriage, divorce, or having kids.
6. Over-Contributing and Lacking the Correction Window
The IRS units strict contribution limits annually. For 2025, the boundaries are $4,150 for people and $8,300 for households, with a $1,000 catch-up allowed for these 55 and older. If you happen to by accident contribute an excessive amount of and don’t withdraw the surplus (and any earnings) earlier than Tax Day, you’ll face a 6% excise tax yearly the additional cash stays in your account.
Most HSA suppliers permit simple correction should you catch it in time, however the clock is ticking. All the time double-check your whole contributions, particularly should you switched jobs mid-year or have a number of accounts.
7. Lacking the Alternative to Make investments
Whereas not a “deadline” within the conventional sense, procrastinating on investing your HSA funds is a time-sensitive monetary lure. Many individuals depart their cash in money, incomes minimal curiosity, even after they’ve constructed up a large stability. In contrast to an FSA, your HSA funds by no means expire, and they are often invested in mutual funds, ETFs, and different choices for long-term progress.
If you happen to delay investing by years, you miss out on compound curiosity and the account’s full retirement potential. Don’t wait till you’re nearing retirement to get strategic. The sooner you progress your HSA from financial savings mode to progress mode, the larger your cushion later.
Don’t Let One Deadline Derail Years of Sensible Saving
Your HSA is likely one of the strongest instruments in your monetary toolbox, but it surely’s additionally one of many best to misuse should you’re not being attentive to the tremendous print.
From rollover guidelines to contribution cutoffs, these traps are avoidable with the appropriate programs in place. Calendar alerts, annual opinions, and good recordkeeping can shield 1000’s of {dollars} and protect the account’s full tax benefits.
Have you ever ever had an HSA deadline sneak up on you? What lesson did it educate you?
Learn Extra:
Why You Should Contemplate Getting an HSA
Your Information to Excessive-Curiosity Financial savings Methods
Riley is an Arizona native with over 9 years of writing expertise. From private finance to journey to digital advertising to popular culture, she’s written about every thing underneath the solar. When she’s not writing, she’s spending her time outdoors, studying, or cuddling together with her two corgis.
