The IRS has recently boosted the Health Savings Account (HSA) contribution limits for 2024 that will give participants the chance to save more money for healthcare expenses, while lowering their taxes.
Key Points
- A health savings account (HSA) can help you pay for health care more easily, lower your taxes, and even save for retirement.
- HSAs use pre-tax contributions that can be used for current medical bills, saved for future medical expenses, or invested in stocks, bonds, or mutual funds.
- The IRS has increased the contribution limits for 2024 for individuals and families.
Contributions to an HSA can be made when enrolled in a high-deductible health plan (HDHP).
New Limits Response to Inflation
The new limits are the biggest increases seen in recent years and are a response to months of high inflation and the resulting spiral in healthcare costs.
“This is very good news to help more Americans understand and use HSAs as a powerful tool in their health care spending and long-term savings,” said Kevin Robertson, senior vice president and chief revenue officer at HSA Bank.
The new contribution guidelines for 2024 are $4,150 for individuals (a 7.8% increase) and $8,300 for families (up 7.1%).
Those who are 55 and older and not on Medicare yet, can add up to an extra $1000 bringing the total to over $10,000 for a couple.
Triple Tax Benefits of HSAs – A Smart Way to Save
Industry experts praise HSAs as a smart way to save for medical expenses, even in retirement because of their triple tax benefits.
As the Society for Human Resource Management observed:
“Contributions are made pretax, the money in the accounts grows tax free and withdrawals for qualified medical expenses are tax free.”
Plan for Retirement
On average, HSA accounts opened in 2005 have grown by more than $50,000 in investments and deposits according to Devenir, an independent adviser and HSA consultant.
This is about one-sixth of the $315,000 an average retired couple will probably need to cover health care expenses during retirement, according to the Fidelity Retiree Health Care Cost Estimate.
Missed Opportunities for Many
However, most holders aren’t taking full advantage of their accounts and are missing out on substantial rewards, according to the Employee Benefit Research Institute (EBRI).
The average account holder has a low balance, contributes much less than the maximum and does not invest their HSA, recent EBRI data found.
A New Perspective
“The vast majority of people are not maxing out their contributions each year,” Robertson said. The new contribution limits “will allow people to think about their needs … and get people more engaged.”
Some Benefits of HSAs
- Because HSA contributions are pre-tax, your taxable income is lowered.
- HSA funds can pay for expenses that your regular plan may not cover, such as dental or eyecare.
- Interest earned in HSAs is tax-free
- Unused HSA funds roll over from year to year.
- At age 65, you can use the funds for any purpose without the 20% penalty. If you also use the money for eligible healthcare expenses, it stays tax-free.
Final Thoughts
Check this Fidelity site to see ways to help you decide how much to keep in cash vs. invest in your HSA. Finding a good financial adviser can also help you understand and manage your account.
This site explains the difference between health savings accounts (HSA) vs. flexible savings accounts (FSA) and which may be better for you.
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