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2024 HSA Contribution Limits Increase: What You Need to Know

As we head into 2024, there’s good news for those looking to save on healthcare costs. The IRS has announced a significant increase in the contribution limits for Health Savings Accounts (HSAs) for the upcoming year. At Columbus Street Financial Planning, we always strive to keep our clients informed about changes that can impact their financial well-being. Let’s dive into what this HSA contribution limit increase means for you and how you can make the most of it.


Understanding HSA's

Before we get into the specifics of the 2024 changes, let’s review what an HSA is and how it works. An HSA is a type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. To be eligible to contribute to an HSA, you must be enrolled in a High Deductible Health Plan (HDHP).

The beauty of an HSA is that it offers a triple tax advantage:

            1. Contributions are tax-deductible.
            2. Growth is tax-free.
            3. Withdrawals for qualified medical expenses are tax-free.

This makes HSAs a powerful tool for saving on healthcare costs, both in the short-term and long-term.


2024 HSA Contribution Limit Increases

Now, let’s get to the exciting part – the 2024 HSA contribution limit increases. For 2024, the HSA contribution limit for individuals is increasing from $3,850 to $4,150. That’s an extra $300 that you can save tax-free for your healthcare expenses. For those with family coverage, the increase is even more significant. The family contribution limit is rising from $7,750 to $8,300 – an increase of $550.

If you’re 55 or older, you can also make an additional “catch-up” contribution of $1,000. This amount is not changing for 2024.

Here’s a quick summary of the changes:

  • 2023 Individual HSA Contribution Limit: $3,850
  • 2024 Individual HSA Contribution Limit: $4,150
  • 2023 Family HSA Contribution Limit: $7,750
  • 2024 Family HSA Contribution Limit: $8,350
  • Catch-up Contribution (55 and older): $1,000 (no change)


Maximizing Your HSA Contributions

With these increased contribution limits, now is the perfect time to reassess your HSA contribution strategy. If you’re not already contributing the maximum amount, consider increasing your contributions to take full advantage of the tax benefits.

Even if you don’t anticipate having significant medical expenses in the near future, contributing the maximum to your HSA can be a smart long-term strategy. Funds in your HSA can be invested and grow tax-free over time. This means your HSA can serve as a powerful retirement savings vehicle. You can use your HSA funds to pay for qualified medical expenses tax-free. This can include things like Medicare premiums (but not Medicare Supplement policies), long-term care insurance premiums, and out-of-pocket medical costs.


Qualifying for an HSA

To contribute to an HSA, you must be enrolled in an HSA-eligible high-deductible health plan (HDHP). For 2024, an HDHP must have a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. Annual out-of-pocket costs can be at most $8,050 for single coverage or $16,100 for family coverage.

It’s important to note that not all high-deductible health plans are HSA-eligible. If you’re unsure whether your plan qualifies, check with your insurance provider or HR department.


What if You're Not HSA-Eligible All Year?

If you’re only HSA eligible for part of the year, your contribution limit will generally be prorated based on the number of months you were eligible. However, there is an exception known as the “last-month rule.”

Under this rule, if you are HSA-eligible on December 1st, you are considered eligible for the entire year and can contribute the full annual amount. However, you must remain HSA-eligible for the entire following year, or you’ll face taxes and penalties on your contributions.

This rule provides a great opportunity to maximize your HSA contributions, but it’s important to carefully consider your eligibility and commit to maintaining it for the required time period.


Employer Contributions

Some employers contribute to their employees’ HSAs. This is a fantastic benefit that can significantly boost your healthcare savings. However, it’s important to note that employer contributions count toward your annual contribution limit.

For example, if you have individual coverage and your employer contributes $1,000 to your HSA in 2024, you can only contribute an additional $3,150 yourself. If your employer offers HSA contributions, be sure to factor this into your personal contribution decision.


The Bottom Line

The 2024 HSA contribution limit increases are a welcomed change that allow you to save even more for your healthcare expenses. By understanding these changes and strategically maximizing your contributions, you can take full advantage of the triple tax benefits HSAs offer.

Whether you’re saving for near-term medical costs or looking to build a nest egg for healthcare expenses in retirement, HSAs are a valuable tool. And with the higher contribution limits, their potential impact on your financial well-being is even greater.

At Columbus Street Financial Planning, I am here to help you navigate these changes and develop a comprehensive financial strategy that incorporates your HSA. If you have any questions about HSAs or how they fit into your overall financial plan, please don’t hesitate to reach out. We’re always here to provide the guidance and support you need to achieve your financial goals.

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