If you’ve been thinking about ways to save on medical expenses, now may be the perfect time to open a Health Savings Account (HSA). Thanks to persistent inflation, the IRS recently announced historic bumps to contribution limits for HSAs, making planning for health savings more beneficial than ever!
What is an HSA?
Established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, Health Savings Accounts (HSAs) are a type of medical savings account with tax advantages. Individuals contribute pre-tax income to savings accounts that may be used to pay for qualified medical expenses. Funds in an HSA roll over from year to year, meaning it is possible to establish significant reserves for future medical costs while saving money by lowering your taxable income.
HSA funds can be used for a variety of qualified medical expenses, including office visits, dental care, eyeglasses, over-the-counter medications, and more. Funds may even be used for costs related to healthcare, like transportation expenses.
Who Qualifies for an HSA?
HSAs are available to those enrolled in High-Deductible Health Plans (HDHP). HDHPs are defined as a plan where the deductible is higher than the average, as determined by the IRS. For 2024 an HDHP includes any plan “with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage.”
In addition to being enrolled in an HDHP, you may not be enrolled in Medicare and must not be claimed as dependent on someone else’s tax return.
Contribution Limit Increases
For 2024 the IRS has raised the contribution limit for an individual to $4,150, an increase of $300 from the previous year, and $8,300 for family coverage, an increase of $550 from 2023. These amounts represent the largest yearly adjustments since the accounts’ inception and reflect rising healthcare-related expenses due to ongoing inflation.
Conclusion
HSAs can provide advantages in both the short term, by lowering your taxable income, and in the long term, by helping establish a cushion for future medical expenses. Increased contribution limits make HSAs more beneficial than ever. If you have any questions about HSAs or tax-advantaged medical savings accounts, please contact your advisors at Bowman & Company. We are happy to help!