#HSA

The IRS recently released the 2024 contribution limits for health savings accounts (HSAs), as well as the 2024 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs).

What is an HSA?

An HSA is a tax-advantaged account that enables you to save money to cover healthcare and medical costs that your insurance doesn’t pay. The funds contributed are made with pre-tax dollars if you contribute via payroll deduction or are tax deductible if you make them yourself using after-tax dollars. (HSA contributions and earnings may or may not be subject to state taxes.) Withdrawals used to pay qualified medical expenses are free from federal income tax.

You can establish and contribute to an HSA only if you are enrolled in an HDHP, which offers “catastrophic” health coverage and pays benefits only after you’ve satisfied a high annual deductible. Typically, you will pay much lower premiums with an HDHP than you would with a traditional health plan such as an HMO or PPO.

If HSA withdrawals are not used to pay qualified medical expenses, they are subject to ordinary income tax and a 20% penalty. When you reach age 65, you can withdraw money from your HSA for any purpose; such a withdrawal would be subject to income tax if not used for qualified medical expenses, but not the 20% penalty.

Importantly, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty.

What’s changed for 2024?

Here are the updated key tax numbers relating to HSAs for 2023 and 2024.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

The IRS has released the 2023 contribution limits for health savings accounts (HSAs), as well as the 2023 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs). An HSA is a tax-advantaged account that’s paired with an HDHP. An HSA offers several valuable tax benefits:

• You may be able to make pre-tax contributions via payroll deduction through your employer, reducing your current income tax.
• If you make contributions on your own using after-tax dollars, they’re deductible from your federal income tax (and perhaps from your state income tax) whether you itemize or not.
• Contributions to your HSA, and any interest or earnings, grow tax deferred.
• Contributions and any earnings you withdraw will be tax-free if used to pay qualified medical expenses.

Here are the key tax numbers for 2022 and 2023.

Prepared by Broadridge Advisor Solutions. Edited by BFSG. Copyright 2022.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

The IRS has released the 2022 contribution limits for health savings accounts (HSAs), as well as the 2022 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs). An HSA is a tax-advantaged account that’s paired with an HDHP. An HSA offers several valuable tax benefits:

• You may be able to make pre-tax contributions via payroll deduction through your employer, reducing your current income tax.
• If you make contributions on your own using after-tax dollars, they’re deductible from your federal income tax (and perhaps from your state income tax) whether you itemize or not.
• Contributions to your HSA, and any interest or earnings, grow tax deferred.
• Contributions and any earnings you withdraw will be tax-free if used to pay qualified medical expenses.

Here are the key tax numbers for 2021 and 2022.

Prepared by Broadridge Advisor Solutions. Copyright 2021.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Using a Health Savings Account (HSA) is a prudent financial decision that many Americans overlook or simply do not understand. One of their primary benefits is that contributed funds do not run out each year like a medical savings account. Instead, unused funds roll over each year and can be used for future medical expenses. This feature creates a unique planning opportunity to help cover future medical expenses, which is important since it is well documented that medical expenses are the largest expense for many in retirement. Furthermore, a retiree can use a health savings account even when on Medicare to cover medical expenses.

Here are some important facts to keep in mind when it comes to an HSA:

• They must be under a high deductible health plan.
• Funds can be used for current or future medical expenses.
• Contribution limits are set by the IRS ($3,550 if single or $7,100 for family).
• You control the assets and they are portable if you retire or switch employers.
• Contributions are 100% tax-deductible and withdrawals are tax-free for qualified medical expenses.

Who qualifies for an HSA?

To qualify, you must be enrolled in a high deductible plan that is compatible with an HSA and you can’t be enrolled in another health plan or in Medicare (funds acquired through an HSA prior to using Medicare can be used, however).

If you have any questions, your best option is to simply inquire with your employer and see if you qualify for an HSA.

What are the tax implications of an HSA?

Contributions up to IRS limits of $3,550 single or $7,100 family are 100% tax-deductible. The money will grow tax-deferred and is tax-free if used to pay qualified medical expenses.

Other factors to consider

Assets in the health savings account can be invested in ETFs, mutual funds, or held in cash. A person can do a partial rollover from an IRA into an HSA (within IRS limits) as well to help fund the HSA. The amount you contribute is an important consideration and it is best to consult with a Financial Advisor to best understand how you can potentially benefit from an HSA and determine what amount is most beneficial for you to contribute.