Why 2024 Might Be the Best Year Ever for Your Health Savings Account

Health Savings Accounts (HSAs) are tax-advantaged medical savings accounts for Americans with high-deductible health plans (HDHP). Health Savings Accounts are important because they provide individuals with a way to set aside pre-tax dollars for medical expenses, such as deductibles, co-payments, and other healthcare-related costs. This allows individuals to save money on healthcare expenses while also enjoying the tax benefits of contributing to an HSA.

The funds in an HSA roll over year to year if not spent, making them a valuable tool for future medical expenses and even retirement. One of the primary benefits of using an HSA for retirement is its unique triple tax advantage: contributions are made pre-tax, reducing taxable income; the investments within the HSA grow tax-free, allowing for compound growth over time; and withdrawals for qualified medical expenses are tax-free, even in retirement. This structure can result in significant tax savings over the long term.

Additionally, after the age of 65, individuals can withdraw funds from their HSA for any purpose without penalty, though non-medical withdrawals will be taxed as regular income. This flexibility, combined with its tax benefits, makes the HSA a valuable complement to other retirement accounts like the 401(k) or IRA, providing retirees with a dedicated source of funds for healthcare costs, which often rise in the later stages of life.

Due to ongoing high inflation, the IRS has announced significant increases in the contribution limits for HSAs for 2024.

  • HSA Contribution Limits for 2024:
    • Self-only coverage: $4,150 (up 7.8% from $3,850 in 2024)
    • Family coverage: $8,300 (up 7.1% from $7,750 in 2024)

Individuals aged 55 and above can add an extra $1,000 to their HSAs, which remains unchanged.

  • HDHP Requirements for 2024:
    • Minimum deductible: $1,600 for self-only (up from $1,500 in 2024) and $3,200 for family coverage (up from $3,000 in 2024).
    • Maximum out-of-pocket expenses (excluding premiums): $8,050 for self-only (up from $7,500 in 2024) and $16,100 for family coverage (up from $15,000 in 2024).

Additionally, the IRS has raised the maximum employer contribution to an excepted-benefit health reimbursement arrangement (HRA) in 2024 to $2,100, an increase from $1,950 in 2024.

These changes, detailed in IRS Revenue Procedure 2024-23, will be effective from January 2024.

Kevin Robertson from HSA Bank commented on the increase, noting that while the rise was expected due to inflation, it holds symbolic significance. For the first time, a couple with family coverage, including catch-up contributions for those 55 and older, can contribute over $10,000. Similarly, a single person with self-only coverage can contribute over $5,000. Robertson emphasized the importance of these levels, suggesting they might attract the attention of financial advisors and help more Americans recognize the potential of HSAs.

HSAs are often highlighted by experts as a wise choice for saving for medical expenses, even post-retirement, due to their triple tax benefits. By the end of 2024, Americans had $104 billion in 35.5 million HSAs. However, many account holders aren’t fully utilizing their HSAs, often contributing less than the maximum and not investing their funds. If you qualify for a Health Savings Account, it’s definitely worth contributing to.