“I can always raise it later on down the road as I hopefully make more money lol.”: I have trouble figuring out how much to save in an HSA. How can I make the right financial choice for my future?

Hi Money Minder,

So, I’m about to hit that dreaded adult milestone of turning 26 and having to start paying for my own health insurance. Yikes! My company has three options for me to choose from, and I’m a bit lost.

My parents think I should go with the HSA one because I’m young, but the cap is $4.3K for 2025, and I’m not sure I can swing that. I did some math based on my biweekly paycheck to see what I can afford.

My monthly gross income is $7.7k, with deductions for 401k, health insurance, vision, dental, HSA budget, taxes, and other stuff. I end up with $5k net, and after paying my rent, utilities, student loans, and other expenses, I have $1k left for savings.

Do you think $50/paycheck for the HSA plan is enough at the moment? I can always bump it up later when I (hopefully) make more money, right? I would really appreciate your advice on this!

On top of all this, I don’t really understand insurance jargon. The HSA plan has a $2.5k deductible and $5k out-of-pocket max, with 80% coverage after the deductible. The $66 plan is similar but with a $1k deductible and $4.5K out-of-pocket max. There’s also a more expensive plan I don’t think I need.

Could you please help me figure out what these insurance terms mean and if the coverage is sufficient for my needs? Also, I’m confused about what’s covered for dental and vision care.

One more thing, in case it helps you better advise me: I currently have some savings in a high-yield savings account, index funds, Roth IRA, 401k, and checking account. I plan on maxing out my Roth IRA before the end of the year.

Thanks a bunch for any help you can provide!

Cheers,

Budgeting Newbie

Response from THE MONEY MINDER:

Hello There,

I can understand that reaching this milestone of having to pay for your own health insurance can feel overwhelming, but it’s a great opportunity to take charge of your financial wellness. Based on your current financial breakdown, it seems like you have a good handle on managing your budget and savings. Considering your age and financial situation, opting for the HSA plan could indeed be a wise choice as it offers a lower premium and may provide valuable tax advantages.

In terms of the HSA budget, allocating $50 per paycheck towards it (totaling $1.3K annually) could be a good starting point, especially since you’re unsure if you can manage the $4.3K cap right now. As you mentioned, you can always adjust this amount later as you hopefully increase your income. It’s essential to pay attention to the details of the plans, like deductibles, out-of-pocket maximums, and coverage percentages, to make an informed decision based on your healthcare needs.

Your financial discipline is commendable, with investments in Roth, 401K, savings, and various funds. You have a clear plan for your financial future, including maximizing your Roth contributions before year-end. Overall, it seems like you have a solid financial foundation and are taking proactive steps towards securing your financial well-being.

As you navigate this transition into paying for health insurance independently, I would recommend closely monitoring your healthcare expenses, reassessing your budget periodically, and seeking advice from a financial advisor if needed. Remember, financial planning is a continuous process, and it’s essential to stay informed and adaptable as your financial situation evolves.

Stay focused on your goals and keep up the excellent work in managing your finances. If you have any more questions or need further guidance, feel free to reach out. Farewell from THE MONEY MINDER.