| Health savings accounts are often a misunderstood and overlooked opportunity for American workers. And yet, an HSA is a savings vehicle that offers a triple tax advantage.
An HSA is essentially a personal savings account that can be used only for medical expenses. To be eligible, you must be enrolled in a high-deductible health plan (HDHP). An HSA allows you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance and some other expenses, you may be able to lower your overall health-care costs.
And now, the annual contribution limit for HSAs will soon get a sizable boost due to inflation, the IRS reports. For 2024, the yearly limit for self-only HSA plans is rising to $4,150 from $3,850 in 2023, and the cap for family plans is jumping to $8,300 from $7,750. The catch-up contribution for savers age 55 and older remains at $1,000 each, bumping the total deposit limit for a couple of older individual savers to $10,300.
It's a "significant increase" when compared with historic HSA inflation adjustments, explains Ashton Lawrence, a certified financial planner and director at Mariner Wealth Advisors in Greenville, South Carolina.
A reminder: You must have a HDHP to qualify for HSA contributions. Qualifying plans require a deductible of at least $1,600 for self-only coverage or $3,200 for a family plan for 2024, according to the IRS.
However, those who qualify may not fully understand how the accounts work. "Clients often overlook the investment and tax planning benefits of an HSA," said CFP Judy Brown, a CPA, and senior financial advisor at SC&H Group in the Washington, D.C., and Baltimore area.
For those who choose HDHPs, an HSA has real advantages. It can offset your medical costs, reduce your taxes and give you a long-term tax-advantaged savings account.
The bottom line: With so many options, deciding on a health plan for you and your family can be confusing. Because health-care coverage is so important, make sure you take the time to understand your options before making any decisions.
For more advice to help you make smart financial decisions, check out CNBC's Financial Advisor Hub and Personal Finance section. |
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