Using an HSA when you're not eligible

The biggest mistake you can make with an HSA is to use one when you're not allowed to. If you have a high-deductible plan and then switch to a lower deductible, you won't be able to contribute to your HSA. You can still use any leftover funds you have, but you can't add more money to your account.

Some people make the mistake of opening an HSA when a deductible is too low. For 2023, the minimum deductible for individual coverage is $1,500 ($3,000 for family coverage). Always compare your insurance plan to current HSA rules, as the guidelines change every year.

Paying for ineligible expenses

Not every health-related expense is eligible for HSA reimbursement, such as cosmetic services, elective surgeries and gym memberships. Over-the-counter prescriptions are only eligible expenses when a doctor has specifically written a prescription for them.

If you pay for nonqualified expenses with your HSA, you could face a 20% fine. Any time you use your HSA card, keep the receipt so you can prove it was for a qualified medical expense.

Contributing too much

Like an IRA or 401(k), an HSA has an annual contribution limit, which is $3,850 for individuals and $7,750 for families in 2023. If you put in too much and don't remove the excess funds before April 15 of the tax year, you'll pay a 6% fine.

Paying someone else's medical bills

The IRS says you can only pay for someone else's medical bills with your HSA if they're your spouse or qualified dependent. A dependent must be someone who lives with you and who depends on you for at least 50% of their financial needs.

Boyfriends, girlfriends, domestic partners and roommates are not eligible for your HSA money, even if you're paying for the rent. If your fiancé is on your health insurance plan, you still can't use HSA money for her medical bills.

Using all of your funds

The money in an HSA account rolls over from year to year, with no limit. Unfortunately, some people confuse HSAs with FSAs, which must be used in the same calendar year that contributions are made.

Think of an HSA like a savings account. You can keep the money there as long as you want without any penalties. You can even leave an HSA behind your will which your heirs can use tax-free.

Using an HSA and FSA

Under current IRS regulations, you're not allowed to have both an HSA and FSA, unless the latter is "limited purpose" or only used for dental and vision expenses. If you discover you or your spouse have both, you'll have to close one of them.