You’ll Be Able to Stash More Money in Your HSA in 2024
Thanks to inflation, you’ll be able to stash a lot more money in your health savings account next year.
The contribution limits for HSAs are getting a big increase, allowing you to save more tax-free money for medical expenses if you’re able to.
Right now, in 2023, employees can contribute up to $3,850 to their tax-advantaged HSA, while those with family health insurance coverage can contribute up to $7,750.
But in 2024, employees will be able to contribute up to $4,150 to their HSA, while people with family coverage will be able to contribute up to $8,300.
Those are 7%-8% increases, making this one of the biggest bumps in years.
(People over 55 can add an additional $1,000 to their HSA if they choose.)
What’s a Health Savings Account (HSA)?
A health savings account is a tax-advantaged account that you and your employer can contribute to in order to pay for eligible medical expenses using pretax dollars. Because the contributions are tax deductible, this reduces your taxable income.
You can use your HSA funds to pay for medical costs as you incur them, or you can let the money in your HSA account grow by investing those dollars.
Health savings accounts can be established by either employers or employees. The goal of an HSA is to help people offset the cost of high-deductible health care plans. (A deductible is the money you pay out of pocket before your health insurance kicks in and starts providing certain benefits.)
In fact, next year your insurance deductible must be at least $1,600 for individuals or $3,200 for families to even qualify for an HSA.
HSAs can be used to cover all sorts of out-of-pocket medical expenses. They’ve been a huge help in making health care affordable to low- and middle-income families who’ve historically struggled under the burden of insurance premiums and deductibles that can run into the thousands.
Here’s how you can use your HSA dollars to pay off medical debt.
The Difference Between an HSA and an FSA
Let’s make one thing clear: A health savings account (HSA) is different from a flexible spending account (FSA) mainly because of the “use it or lose it” factor with an FSA.
With an FSA, you lose whatever money you don’t use up by the end of the year. With an HSA, whatever money you don’t use up during the year rolls over into the next year.
Most People Don’t Max Out HSAs Despite Tax Benefits
The truth is, most employees don’t max out their HSA contributions anyway. The average employee who has an HSA keeps a modest balance in it and doesn’t contribute anywhere near the maximum, according to the Employee Benefit Research Institute.
However, HSAs have distinct advantages. Mainly, an HSA allows you to save for various medical expenses without being taxed on that money.
If you have this benefit through your job, your employer can direct a portion of your paycheck to your health savings account before taxes are taken out. Or, if you fund your HSA with income that’s already been taxed, you can deduct your contributions when filing your income taxes.
You also aren’t taxed when you spend HSA dollars, provided you’re spending the money on qualified medical expenses.
Another benefit of having a health savings account is that you don’t have to pay taxes on the interest or investment returns as your HSA balance grows.
Here’s how you can use an HSA to boost your retirement savings strategy.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.