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: when you miss the fantastic print, particularly the deadlines, that “sensible transfer” can flip right into a silent monetary entice.
Yearly, numerous Individuals miss out on hundreds of {dollars} because of late contributions, misunderstood rollover guidelines, and forgotten reimbursements. The pliability of an HSA solely works when you observe its construction. And lots of of its deadlines? They’re agency. Let’s break down the seven greatest HSA deadline traps that might 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 expensive) errors: assuming you’ve got till the tip of the calendar 12 months to contribute. In actuality, you’ve got till Tax Day, often round April 15, to make HSA contributions for the earlier tax 12 months. However as soon as that date passes, there’s no going again. You lose your likelihood to decrease final 12 months’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 nicely earlier than the IRS deadline.
2. Forgetting to Use HSA Funds for Certified Medical Bills
An HSA provides you the ability to withdraw funds tax-free for certified medical bills. However when 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 turn into disabled.
Keep away from the entice: All the time maintain digital or bodily receipts, and double-check the IRS’s listing 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 straight away. You may 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. 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, you have to full the rollover inside 60 days. In any other case, your complete quantity is handled as a distribution topic to tax and that dreaded 20% penalty. And right here’s the kicker: You may 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 each time potential. It bypasses the chance fully.
5. Not Updating Beneficiaries in Time
Whereas this isn’t a tax deadline, it could actually have enormous monetary penalties. If you happen to cross 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, your complete quantity is handled as taxable earnings for the beneficiary within the 12 months of your demise.
The answer is straightforward: Assessment your HSA account yearly and ensure your beneficiary designation is updated, particularly after large life occasions like marriage, divorce, or having youngsters.
6. Over-Contributing and Lacking the Correction Window
The IRS units strict contribution limits every year. 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. If you happen to unintentionally 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 enable straightforward correction when you catch it in time, however the clock is ticking. All the time double-check your whole contributions, particularly when 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 entice. Many individuals go away 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 development.
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 development mode, the larger your cushion later.
Don’t Let One Deadline Derail Years of Good Saving
Your HSA is likely one of the strongest instruments in your monetary toolbox, however it’s additionally one of many best to misuse when you’re not taking note of the fantastic print.
From rollover guidelines to contribution cutoffs, these traps are avoidable with the fitting programs in place. Calendar alerts, annual opinions, and good recordkeeping can shield 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 train you?
Learn Extra:
Why You Should Take into account 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 and marketing to popular culture, she’s written about the whole lot beneath the solar. When she’s not writing, she’s spending her time outdoors, studying, or cuddling together with her two corgis.