Inflation has been wreaking havoc on consumers for roughly two years now. And while that's been a burden in many ways (think paying a premium for a carton of eggs), there have been a few silver linings.
One is that seniors on Social Security have seen their monthly benefits get a sizable raise due to inflation. Another is that the contribution limits for a number of popular savings plans have increased. IRA limits, for example, increased in 2023 from $6,000 to $6,500 for savers under age 50.
Inflation is also resulting in some big changes to health savings accounts, or HSAs. Come 2024, HSA participants will have the chance to set aside even more money for healthcare expenses in a tax-advantaged manner. And that's an opportunity worth jumping on.
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Introducing the new HSA limits
Right now, HSAs max out at $3,850 for individual coverage and $7,750 for family-level coverage. There's also a $1,000 catch-up contribution option for savers 55 and older.
In 2024, the HSA contribution limit for individual coverage is rising to $4,150, while the limit for family-level coverage is rising to $8,300. The $1,000 catch-up option for older savers will remain as-is.
Now as a reminder, HSAs offer savers three distinct tax breaks in the course of saving for healthcare:
- Contributions are tax free.
- Investment gains are tax free.
- Withdrawals are tax free when used to cover qualifying healthcare expenses.
Another great thing about HSAs is that they offer a lot more flexibility once you turn 65. Prior to then, nonmedical withdrawals are subject to a costly penalty. But that penalty is waived at age 65, at which point HSA funds can be used to cover any retirement expense imaginable.
Will you qualify for an HSA in 2024?
While HSA contribution limits are rising next year, so too are the minimum deductibles needed to be eligible for one of these plans. Right now, a $1,500 deductible or more is needed to qualify for an HSA on an individual basis, while a $3,000 deductible or more is needed to qualify at the family level.
Come 2024, these limits are rising to $1,600 and $3,200, respectively. Since many people pay a deductible that's higher than these numbers right now, this change won't be an issue for everyone. But it's important to review your coverage to make sure your HSA eligibility hasn't changed.
In addition, to qualify for an HSA right now, your plan might have a maximum out-of-pocket charge of $7,500 for individual coverage, and $15,000 for family coverage. Next year, these limits are rising to $8,050 for individuals and $16,100 for families.
All told, the fact that HSA contribution limits are rising substantially for 2024 is a good thing. Healthcare can be a major expense at any stage of life, so getting the chance to reap added tax savings in the course of paying for it is important. And for those earmarking their HSAs specifically for retirement, next year's higher limits should make it easier to grow those balances nicely.
