Health Savings Accounts, more commonly known as HSAs, are becoming an important tool in helping many individuals better manage their personal health care costs while offering triple tax benefits for those who qualify and can afford to fund them. Contributions to HSAs are tax-deductible, grow tax-free, and qualified withdrawals are not taxed. Unlike FSAs (Flexible Savings Accounts) unused funds in an HSA can roll over each year and when combined with future contributions may grow significantly in value over time.
For more affluent investors who can cover their health-care deductibles from other resources, HSAs can serve as an additional retirement resource. Once you reach age 65, they are treated similar to traditional IRAs, but with no required minimum distributions. Current contribution limits of $3,650 (individual) and $7,300 (family) will jump by over 7% in 2024 to $4,150 and $8,300, respectively. For those age 55 and older an additional $1,000 catch-up contribution per person is allowed. Many employers also add a company contribution to their employees’ HSAs. To qualify for an HSA, your employer must offer a high-deductible health plan (HDHP) with minimum deductibles in 2023 of $1,500 (individual) and $3,000 (family). HDHPs offer lower monthly premiums and because of the high deductible, shift more of the cost for health care to the insured which is believed to help reduce overall cost pressures.
HSAs are becoming more popular each year with $104 billion currently held in 35.5 million HSAs. Low-premium, high deductible health plans are ideal for younger adults who typically spend less on health care and HSAs can help them gain a head start to help mitigate future rising health care expenses. To see if you qualify for an HSA, contact your firm’s benefits department. If your plan qualifies you can then open an HSA account and start contributing to it each year if desired. You can invest your HSA account conservatively, moderately, or aggressively depending on your return expectations, risk tolerance, expected health care needs and other factors. You may wish to discuss the pros and cons of funding an HSA with your personal financial advisor who can assist you in determining if an HSA is a prudent strategy for you.