Contributions to health savings accounts, considered by many financial planners to be their go-to tool for retirement, will see their biggest ever increase next year.
New Annual Limit for 2024 announced IRS Health Savings Account (HSA) contribution Premiums for individuals will be $4,150, an increase of $300 or 7.8% from the 2023 limit of $3,850. For family insurance, the HSA contribution limit will be $8,300, an increase of $550 or 7.1% from $7,750 this year.
This is the largest increase in contribution levels since the account was opened in 2004. This significant increase comes from a modest 1.4% increase from 2021-2022 on top of a massive 5.5% increase over the 2022 contribution limit this year. Additional catch-up contributions for account holders over the age of 55 are fixed at $1,000.
“The 2024 HSA contribution limit increase is the largest we have seen to date and is a natural consequence of inflation being hotter than it has been in the past,” said the Institute for Employee Benefits. Wealth researcher Jake Spiegel says (every), the nonprofit, bipartisan organization told Yahoo Finance.. “This increase will certainly help account holders extend their medical savings a little further.”
A higher contribution limit can also increase your retirement savings with a 3x vehicle tax benefit.
What are HSAs?
To fund HSA, you must be registered with HSA. high deductible health insurance. A plan with a high deductible will pay you a lower monthly premium than other types of plans, but you will pay a higher annual deductible, which is the amount you pay for medical expenses that are covered before the insurance takes effect. increase.
You can also open an account as a self-employed freelancer or business owner if you have an eligible High Deductible Health Plan (HDHP).
HSA contributions to your employer can be made through automatic payroll deductions that are credited to your account tax-free from your paycheck. You can also add funds directly to HSA at any time. These donations are not tax-exempt, but are deductible on your tax return.
Some employers match contributions to HSA as well as employer-provided retirement savings accounts. Your contributions carry forward each year and can be brought with you when you retire or change employers.
Withdrawal amounts not used for eligible medical expenses, such as deductibles, have hefty penalties of 20% and you will pay income tax on the disqualified amount.
There are no penalties if you are over 65, you can withdraw funds for any purpose and only pay income tax on those funds, making these accounts very attractive.
“It’s more tax effective than the retirement plan.”
An HSA account is a smart way to increase your retirement savings. You get triple tax benefits. This is the only account that allows you to deposit funds on a tax-free basis, accumulate tax-free, and withdraw tax-free for qualifying medical expenses.
“The three tax benefits offered by the HSA are more tax efficient than retirement plans,” the HSA said. specialist Roy Ramtoon, who led the US Treasury Department’s implementation of the HSA after it was enacted into law in 2003, told Yahoo Finance. “They should not be seen as replacements for traditional retirement plans, but they can be a good complement to them.”
However, the reality is that most account holders use HSA to pay their recurring expenses and do not take advantage of the tax benefits that HSA offers. Only about 2.6 million medical savings accounts invest at least a portion of HSA dollars, according to the HSA advisory firm. Devenir.
Recent EBRI report A survey of our database of over 13 million HSAs confirms that scenario.
According to the researchers, “on average, account holders appear to use the HSA as a dedicated checking account rather than an investment account, but this behavior changes the longer the HSA holder holds the account. It seems to do.”
Perhaps the higher the level of contribution, the more people will consider the possibilities. Mr Lamtoon said the “most significant” consequences of the new restrictions were for married couples. If both spouses are eligible for her HSA and are 55 or older, they may be able to contribute more than $10,000 a year to her HSA in total. “$8,300 + $1,000 + $1,000 = $10,300,” he said.
“I hear many financial advisers think the HSA isn’t worth the struggle because people can’t put enough money into the HSA each year. If you pay $10,000 a year for 10 years, that adds up to more than $100,000 “to help with your retirement medical bills,” Ramtoon said.
It helps, to say the least.
“Medicare isn’t free, it has a large out-of-pocket expense, it doesn’t cover most dental, vision, and hearing costs, it doesn’t cover most long-term care, and most of us probably spend more. You will need to take advantage of medical expenses.”The older you get, the more medical care you will have,” Mr Lamtoon said.
Kelly Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist and career and retirement strategist, author of 14 books including In Control at 50+: How to Succeed in The New Work of Work and Never Too Old To Get Rich. is also the author of the book follow her on her twitter @Kelly Hannon.
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