Recently, the Internal Revenue Service (IRS) announced a large increase in the annual limit that people may contribute to health savings accounts (HSAs).
Families will be able to make an HSA contribution of up to $8,300 starting in 2024, while individuals can make an HSA contribution of up to $4,150. In comparison to the prior year, which set the maximum contributions at $7,750 for families and $3,850 for individuals, these restrictions are higher.
Older married couples can save up to $10,300 annually with the option to contribute an additional $1,000 for those who are 55 years and older. This sum has increased from the current year’s $9,750. A couple might build up more than $100,000 in their HSA accounts over the course of the ten years leading up to retirement.
Many Americans underutilize and frequently misunderstand HSAs. People must not be enrolled in Medicare and have a high-deductible health plan that complies with HSA requirements in order to be eligible to contribute.
HSAs offer better tax advantages relative to 401(k) plans and individual retirement accounts (IRAs), which both allow for the utilization of medical expenses. The growth of funds within HSAs, as well as withdrawals used to pay for qualified medical costs, are all tax-free.
Medicare Part B premiums, which in 2023 may amount to roughly $4,000 for a married couple with an income of up to $194,000, are among the list of allowable medical expenses. Deductibles, copayments, dental and vision charges, hearing fees, even long-term care expenditures are included in this category.
Account holders can instantly benefit from a tax break by making deposits into an HSA and using the money for medical costs. The benefit of being able to invest the money prior to using it is another perk.
Limits for 2024: HSA contribution caps are boosted by $100 to $200 every year to keep up with inflation. The family maximum limit did, however, increase by $450 in 2023 and an additional $550 in 2024 as a result of strong inflation.
Americans held over $112.5 billion in about 37 million HSA accounts as of January 2023. Notably, Americans pay close to $400 billion per year on personal healthcare costs after taxes.
Investment Choice: Unlike the majority of 401(k) plans, which invest employees’ money automatically, frequently in target-date funds that include equities and bonds, HSAs require members to actively pick where they want their money to be invested. This usually happens when the basic bank deposit account reaches a specific amount, frequently $1,000.
Individuals who invested in their HSAs at the end of 2022 had an average total balance of $16,397 (including deposits and investments). The average HSA amount for those who only had deposit accounts and no investments was $2,445.