The annual contribution restrict for well being financial savings accounts, or HSAs, will quickly get a large increase resulting from inflation, the IRS introduced this week.
By 2024, the annual restrict for particular person HSA plans will enhance to $4,150 from $3,850 in 2023, and the restrict for household plans will enhance to $8,300 from $7,750. The catch-up contribution for savers age 55 and older stays at $1,000 every, elevating the whole deposit restrict for a pair of particular person savers over $10,300
That is a “important enhance” in comparison with historic HSA inflation changes, in accordance with Ashton Lawrence, an authorized monetary planner and director of Mariner Wealth Advisors in Greenville, South Carolina.
Previous to 2022, the common annual enhance for the HSA contribution restrict was about 1.6% per 12 months, Lawrence mentioned, and the leap from 2023 to 2024 for household and self-employed plans shall be about 8% to 7%. , respectively. “It is extraordinarily advantageous for purchasers,” she added.
Shoppers ‘usually overlook’ HSA tax advantages
You could have a high-deductible medical health insurance plan to qualify for HSA contributions. Qualifying plans require a deductible of at the least $1,600 for particular person protection or $3,200 for a household plan by 2024, in accordance with the IRS.
However those that qualify might not totally perceive how the accounts work. “Shoppers usually overlook the funding and tax planning advantages of an HSA,” mentioned Judy Brown, CFP and senior monetary advisor at SC&H Group within the Washington and Baltimore space. She can be an authorized public accountant.
Well being financial savings accounts supply three tax advantages:
- There’s an “above the road” advance deduction for contributions that lets you declare tax exemption even for those who do not itemize the deductions. And you may contribute as much as the tax deadline, which implies you can also make deposits from 2024 till your submitting due date in 2025.
- Not like pretax particular person retirement accounts or 401(ok) plans, which may additionally present an advance tax break, you may withdraw cash at any time tax-free for certified medical bills.
- It’s also possible to develop the account tax-free by investing, which may grow to be a “medical retirement financial savings fund,” Brown mentioned. However most Individuals do not use HSAs for that function. About 62% of account holders spend the cash on annual or short-term bills, in accordance with an April 2023 report from the Worker Advantages Analysis Institute.
“The HSA is a superb choice to do one thing the IRS hardly ever permits, which is have your cake and eat it too,” with the preliminary tax break and future tax-free withdrawal, mentioned Jim DeGaetano, CFP and founding father of Diamond. Property Advisors in Carlisle, Pennsylvania. He’s additionally a CPA.
