The IRS has announced higher contribution limits for Health Savings Accounts (HSAs) for 2024, allowing you to save more for healthcare expenses if you’re using a high-deductible healthcare plan. An HSA provides you key tax advantages, including the potential for a triple tax benefit: tax-free contributions, tax-free capital gains, and tax-free withdrawals when used for qualified healthcare expenses. For more on the advantages of HSAs check out the previous Escient Financial Insights article HSAs and Tax-Free Distributions. Just know that the limits mentioned in that article are no longer valid. Continue reading for the HSA contribution limits for 2023 and 2024, as well as other key HSA eligibility requirements.
HSA Contribution Limits
Your maximum annual contribution to an HSA is determined primarily by who is being covered: yourself or your family.
For 2023, the maximum contribution for self-only coverage is $3,850, and the maximum contribution for family coverage is $7,750. Those age 55 and older can make an additional $1,000 catch-up contribution.
It's important to note that these limits are hard caps. Some employers add contributions to HSA accounts, and that amount needs to be subtracted from the maximum contribution to determine how much the employee can contribute themselves. For example, if your employer contributes $2,000 to your family HSA account, you’ll be able to add at most an additional $6,300 yourself if you're under age 55. If you are 55 or older, then you would be able to contribute $7,300 yourself.
HSA Contribution Limits for Those Not Covered for the Full Year
It’s also important to know that you can only be contribute to an HSA for the months that you’re actually enrolled in an eligible healthcare plan at the first of the month. For example, if you had an eligible healthcare plan through August 15, you’d be able to contribute a prorated amount of eight-twelfths (8/12) of the annualized amount. For single-only coverage for a person under age 55 that would amount to a contribution limit of $2,767
There is an important exception called the “last-month rule.” Those who are enrolled in an eligible healthcare plan as of December 1st are able to make a full year’s worth of HSA contributions for that year. There is a catch, though. Employees must stay enrolled in the eligible healthcare plan until December 31st of the following year. Leave the healthcare plan before the following year is up could result in the IRS levying income taxes on any excess contributions as well as a 10% penalty on the excess contributions.
HSA eligibility requirements
The ability to contribute to an HSA requires enrollment in a high-deductible healthcare plan. A self-only healthcare plan must have a minimum annual deductible of $1,500 and an annual out-of-pocket limit of $7,500 in 2023. For 2024 the minimum annual deductible is $1,600, and the annual out-of-pocket maximum is $8,050.
A family healthcare plan must have a minimum annual deductible of $3,000 and an annual out-of-pocket limit of $15,000 in 2023. For 2024 the minimum annual deductible is $3,200, and the annual out-of-pocket maximum is $16,100.
Also to be eligible, the HSA participant cannot be able to be claimed as a dependent on someone else’s tax return for that tax year, and cannot be enrolled in Medicare. You also can’t be covered by another healthcare plan in addition to the qualifying high-deductible plan. However, you can contribute to an HSA as a married individual if you’re covered by a high-deductible plan and not covered under your spouse’s healthcare plan.
Bottom Line
Health Savings Accounts can provide some powerful tax benefits for those using them, whether for medical expenses or for future retirement needs (read the previous Escient Financial Insights article HSAs and Tax-Free Distributions for more on that). However, it's important to make sure you’re eligible, that you don’t go over the annual contribution limits, and that your medical expenses are qualifying. A financial planner can help with integrating an HSA into your financial plan in the most effective way possible. Feel free to...
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in digital assets or cryptocurrencies.
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