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For Your Life David Rae January 11, 2024

The New 2024 Health Savings Accounts (HSA) Limits Explained

A Health Savings Account, often called an HSA, allows you to pay for some medical expenses with tax-free money. As you can imagine, there are limits to how much you can contribute each year and how to spend the money saved in your HSA. There is good news if you are eligible for an HSA. The contribution limits are increasing for 2024.

The IRS announced one of the most significant increases to the maximum Health Savings Account contribution limits for 2024. The new 2024 HSA contribution limit is $4,150 if you are single—a 7.8% increase from the maximum contribution limit of $3,850 in 2023. The 2024 HSA contribution limit for families is $8,300, a 7.1% increase from the 2023 limit of $7,750.

For HSA users aged 55 and older, you can contribute an extra $1,000 to your HSAs. This amount will remain unchanged in 2024.

What Are the 2023 HSA Contribution Limits?

The Health Savings Account contribution limits for 2023 are $3,850 for individuals and $7,750 for families. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.

You generally have until the tax filing deadline to contribute to an HSA. This means for tax year 2023, you can make contributions up until April 15, 2024.

What Are the New 2024 HSA Contribution Limits?

Health Savings Account contribution limits have increased for 2024. The HSA contribution limits for 2024 are $4,150 for individuals and $8,300 for families. Those aged 55 and older can contribute an additional $1,000 as a catch-up contribution.

HSA Eligibility

For 2024, a high-deductible health plan (HDHP) must have a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. Annual out-of-pocket expense maximums (deductibles, co-payments and other amounts, but not premiums) cannot exceed $8,050 for single coverage in 2024 or $16,100 for family coverage.

HSA Contribution Limits Without a High Deductible Health Plan

Your contributions may be limited if you are reading this and are not enrolled in an HSA-eligible health insurance plan for the entire year. However, if you are still explicitly covered on December 1 of a given year, you should be able to contribute the maximum for that year to an HSA.

If you weren't covered by an HSA-eligible health insurance plan for the entire year, you could determine your prorated contribution amount by counting the number of months you were enrolled in an HDHP on the first of a month and dividing it by 12. You would then multiply the number by the total amount you could contribute if you were eligible for the whole year.

HSA Contribution Limits When You Are Enrolled in an HDHP on December 1

If you are enrolled in an HDHP health plan on December 1 of a given year, you can contribute the maximum amount you're eligible for, per the IRS' "last-month rule." This is true whether you've been enrolled in an HSA-eligible health plan for 1 day or 365 days. The last-month rule has one big caveat that you must follow.

You will need to stay enrolled in an HDHP for a one-year "testing period" running from December 1 of the year you contribute to December 31 of the following year. If you are no longer enrolled in an HSA-eligible HDHP during that year, you must pay income taxes and a 10% penalty on any excess contributions you may have made when you file your tax return.

Should You Contribute the Maximum Amount to an HSA?

There are several reasons to contribute the maximum each year to a Health Savings Account. Here are the three most common reasons you may to consider maximizing your HSA contribution in a given year.

1. You Expect a Large Medical Bill During the Year

If you are expecting a large amount of medical expenses during a given year, why not max out your HSA and be able to pay for at least part of them with pre-tax money?

2. You Want the Deduction from HSA Contributions

You won't owe income taxes on the money you contribute yearly to an HSA. If you want to reduce your taxes each year, maxing out your HSA can be a nice part of a tax-minimization strategy.

3. You Want More Tax-Free Income in Retirement

If you are already maxing out your 401(k), treating your HSA like an additional retirement account could be a smart move. You could invest your funds and grow quite a nice pool of money that could be withdrawn tax-free to fund medical expenses in retirement. You could also stockpile receipts and reimburse yourself for all your medical spending while you have built up the HSA account balance.

Do Employer Contributions Affect HSA Limits?

Your employer may contribute to your Health Savings Account if you are lucky. Your employer may contribute a set amount per employee or may make matching contributions of some kind. The IRS sets total annual limits on the amounts that may be contributed to an HSA. If an HSA is funded by employer and employee contributions, the total contribution limits for the year are the same. Simply put, your employer contributions will reduce the amount you, the employee, can contribute. Any extra money from your employer is a good thing.

Contributions made by an employer to the health savings account for eligible employees are excludable from the employee's income. They are not subject to federal income tax, Social Security or Medicare taxes. If you were wondering, employer contributions are deductible as a business expense to the company.

 

This article was written by David Rae from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

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