The IRS announced this week that the annual contribution limit for Health Savings Accounts, or HSAs, will soon get a big boost due to inflation.
For 2024, the annual limit for self-only HSA plans increases to $4,150 from $3,850 in 2023, and the maximum for family plans jumps to $8,300 from $7,750. The compensation contribution for savers age 55 or older remains at $1,000 each, increasing the total deposit limit for a few older individual savers to $10,300.
It’s a “significant increase” when compared to historical HSA inflation adjustments, according to Ashton Lawrence, a certified financial planner and director at Mariner Wealth Advisors in Greenville, South Carolina.
Before 2022, Lawrence said, the average annual increase in the HSA contribution limit was about 1.6% per year, and the jump from 2023 to 2024 for self- and family-based plans would be about 8% and 7%, respectively. “It is very beneficial for customers,” he added.
Customers often overlook the benefits of the HSA tax
You must have a high-deductible health insurance plan to qualify for HSA contributions. Eligible plans require a deductible of at least $1,600 for self-coverage only or $3,200 for a family plan for 2024, according to the IRS.
But those who qualify may not fully understand how the accounts work. “Clients often overlook the investment and tax planning benefits of an HSA,” said Judy Brown, CFP and senior financial advisor with SC&H Group in the Washington and Baltimore area. She is also a Certified Public Accountant.
Health savings accounts offer three tax benefits:
- There is an “above the line” deduction up front for contributions that allows you to claim the tax exemption even if you don’t itemize the deductions. And you can contribute until the tax deadline, which means you can file 2024 until the deposit is due in 2025.
- Unlike pretax individual retirement accounts or 401(k) plans, which may also provide upfront tax relief, you can withdraw money at any time tax-free for qualified medical expenses.
- You can also grow the tax-free account by investing, Brown said, which can become a “retirement egg for medical expenses.” But most Americans don’t use HSAs for this. About 62% of account holders spend money on annual or short-term expenses, according to an April 2023 report from the Employee Benefits Research Institute.
said Jim DeGaetano, CFP and founder of Diamond Wealth Advisors in Carlisle, Pennsylvania. He is also a Certified Public Accountant.