A health savings account can make medical care a lot more affordable. HSAs have what’s often referred to as a triple-tax advantage:

• You save pre-tax money.

• Your money grows tax-free.

• Your withdrawals are also tax-free as long as you use the money for healthcare expenses approved by the IRS.

HSA contribution limits are increasing in 2024. In this article, we’ll cover the rules for HSAs, what types of health plans are HSA-compatible, as well as some factors to consider as you shop for health insurance.

2023 and 2024 HSA rules

HSAs are accounts that let you pay for out-of-pocket healthcare costs using pre-tax money. Any money you withdraw for qualified medical expenses is also tax-free, but if you take an HSA distribution that isn’t healthcare-related, you’ll get hit with a 20% penalty on top of income taxes.

If you wait until you’re 65, you can withdraw HSA money for any purpose – but if it isn’t for a medical expense, you’ll still owe ordinary income taxes.

Overall, the tax benefits of an HSA are even more generous than you get with a retirement account, like a 401(k) or individual retirement account (IRA). So, it’s not surprising that the IRS places annual limits on how much you can contribute to an HSA.

If you’re 55 or older, your HSA annual contribution limits are higher because you’re allowed to make an extra catch-up contribution. In 2023 and 2024, the HSA catch-up contribution is $1,000.

Many employers that offer HSAs make a contribution on workers’ behalf. If your employer offers this benefit, it’s important to know that their contribution counts toward your annual limit.

Say, for example, you’re 45 years old with self-only coverage. If your employer contributes $500 annually, you’ll only be able to contribute $3,650 to your HSA in 2024 rather than $4,150.

2023 and 2024 high-deductible health plan minimums

To contribute to an HSA, you’ll need to have what’s called a high-deductible health plan (HDHP) for your medical coverage. You can purchase an HDHP on your own or select one (if it’s offered) during annual enrollment with your employer.

Some services that are considered preventative care under the Affordable Care Act – like certain screenings and immunizations – must typically be provided at no charge before your deductible. But aside from preventive care, a high-deductible health plan won’t start to pay for services until you’ve hit your deductible for the year.

The 2023 and 2024 HDHP minimum deductibles and maximum out-of-pocket limits are listed below. Note that the minimum deductible is the lowest annual deductible a plan can require to be considered an HDHP that’s compatible with a health savings account. The out-of-pocket limit is the annual maximum amount your insurer can require you to pay before it pays for 100% of services.

Here’s an example of how an HDHP works with an HSA: Let’s say you have a self-only high-deductible health plan, and your deductible is $2,000. You also have $3,000 tucked away in an HSA.

If you visited your primary care doctor for a checkup and routine screenings, you likely wouldn’t be charged because insurers generally have to cover preventative care. If you visited the doctor because you felt sick or filled a prescription, though, you’d have to pay out of pocket until you reached your $2,000 deductible. But you could use the HSA money you saved pre-tax to cover those expenses.

There are rules for what expenses are HSA-eligible set by the Internal Revenue Service, but they broadly include costs for diagnosing and treating diseases and injuries, as well as medical equipment and supplies. HSAs cannot be used to pay for health insurance premiums (though they can be used for some Medicare premiums) or for non-specific health products such as vitamins.

What if I have HSA money left over at the end of the year?

One nice thing about HSAs is that you don’t forfeit unused funds at the end of the calendar year. If your medical expenses are relatively low in one year, the money will still be there for you to use later. The money stays with you if you lose your job or change employers. You can even earn interest on it or invest it, though your options will vary depending on your HSA provider.

Once you’re 65, you can withdraw HSA money for any purpose without incurring the 20% penalty that usually applies to non-medical withdrawals. However, you can avoid paying taxes on your distributions if you use that money for healthcare.

For that reason, an HSA is a smart retirement-planning tool that can help you shoulder health-related costs in your senior years, provided that you don’t need the money sooner. Some people choose to save extra money in their HSA when they’re already contributing up to the 401(k) limits and IRA limits.

When is the deadline to max out your HSA?

If you don’t max out your HSA before the new year, you still have time. The deadline for HSA contributions is the filing deadline for the tax year. In other words, you have until April 15, 2024, to make your 2023 HSA contribution. You can fund your HSA for 2024 any time before April 15, 2025.

FAQs

What is the maximum HSA contribution for 2024?

The maximum HSA contribution in 2024 is $4,150 for self-only coverage and $8,300 for families, plus an additional $1,000 if you’re 55 or older. These limits are $300 higher for self-only coverage and $550 higher for family coverage than the 2023 limits.

Can I make HSA contributions on my own?

Yes, you can make HSA contributions even if your employer doesn’t offer one by opening an account through a financial institution. However, to be eligible to fund an HSA, you must be enrolled in a high-deductible health plan.

How much should I contribute to my HSA from my paycheck?

If you’re paid biweekly, the most you can contribute to your HSA is $159.61 if you have self-only coverage or $319.23 if you have family coverage. Your maximum contribution will be less if your employer contributes to your HSA. Contributing up to the limit is a smart goal, but before you max out your HSA, make sure you have at least a three- to six-month emergency fund and that you’re saving for retirement.

What’s the difference between HSAs, FSAs, and HRAs?

First, FSAs, or flexible spending accounts. These are fringe benefits offered by many employers that allow you to contribute funds for health or dependent care expenses pre-tax. But unlike HSA money, there’s no rollover with FSA funds. They must be used by year-end (or a predetermined deadline a few months into the next year.) They can, however, be used for a wider variety of health expenses, including over-the-counter medications.

An HRA, or health reimbursement arrangement, is a pot of money you can use for health costs, but it’s funded entirely by your employer. Not all employers offer them, of course, and you can’t add any of your own money. You may be able to roll over unused funds at the end of the year (that’s up to your employer), but you can’t take the money with you if you leave your job.