A Well being Financial savings Account (HSA) is usually praised as one of many smartest monetary instruments obtainable, providing triple tax advantages and long-term financial savings potential. However there’s a catch: in the event you miss the effective print, particularly the deadlines, that “good transfer” can flip right into a silent monetary lure.
Yearly, numerous People miss out on hundreds of {dollars} attributable to late contributions, misunderstood rollover guidelines, and forgotten reimbursements. The pliability of an HSA solely works in the event 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 one of the crucial widespread (and dear) errors: assuming you may have till the tip of the calendar yr to contribute. In actuality, you may 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 in the event 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 except you’re over age 65 or turn into disabled.
Keep away from the lure: All the time maintain digital or bodily receipts, and double-check the IRS’s record of certified medical bills earlier than swiping that HSA debit card.
3. Failing to Reimburse Your self in Time
One neglected good thing about an HSA is that you simply don’t must reimburse your self for medical bills straight away. 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 concerning the expense altogether, or they lose the documentation. With out correct proof, you may’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. For those who don’t doc it, the IRS will assume it didn’t occur.
4. Lacking the 60-Day Rollover Window
Did you alter HSA suppliers? For those who 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, the whole 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 price you hundreds.
To keep away from this, go for a trustee-to-trustee switch every time doable. It bypasses the danger solely.
5. Not Updating Beneficiaries in Time
Whereas this isn’t a tax deadline, it could actually have big monetary penalties. For those who go away with cash in your HSA and haven’t named a correct beneficiary, your account might turn 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, the whole quantity is handled as taxable earnings for the beneficiary within the yr of your loss of life.
The answer is easy: Assessment your HSA account yearly and ensure your beneficiary designation is updated, particularly after huge life occasions like marriage, divorce, or having youngsters.
6. Over-Contributing and Lacking the Correction Window
The IRS units strict contribution limits annually. For 2025, the bounds are $4,150 for people and $8,300 for households, with a $1,000 catch-up allowed for these 55 and older. For those who by chance 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 straightforward correction in the event you catch it in time, however the clock is ticking. All the time double-check your whole contributions, particularly in the event 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 go away their cash in money, incomes minimal curiosity, even after they’ve constructed up a large steadiness. Not like 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.
For those who 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 Good Saving
Your HSA is among the strongest instruments in your monetary toolbox, however it’s additionally one of many best to misuse in the event you’re not listening to the effective print.
From rollover guidelines to contribution cutoffs, these traps are avoidable with the precise methods in place. Calendar alerts, annual evaluations, and good recordkeeping can defend hundreds 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
