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Health Savings Account Changes

By Tax Principal, Scott Syrjala

Healthcare can be a large expense for working Americans and retirees alike. Fortunately, it’s possible to set funds aside for current and future medical expenses in a tax-advantaged fashion using a Health Savings Account, or HSA. With an HSA, the money contributed does not have to be used in the year contributions are made. ¬†Instead, it is beneficial to contribute more funds than what will be needed in a given year so the excess can remain invested and grow within the account.

It is beneficial to maximize your contributions because HSAs have a triple tax-advantage as the money contributed goes in tax-free, grows on investments in your account tax-free, and your withdrawals are tax-free provided they are used for qualified medical expenses. Other plans such as traditional IRAs and 401(k)s do not see the same advantage as they do not have tax-free withdrawals.

The rules and limits can change from year to year as the IRS revisits them. The following are key changes coming to the Health Savings Account in 2020:

  • To qualify, you must be on a high-deductible health insurance plan. The deductible requirement in 2020 has increased by $50 for individuals to $1,400 and $100 for family coverage to $2,800.
  • The amount HSA participants can contribute to their plans is increasing. For 2020, contribution limits are increasing by $50 for individual coverage to $3,550 and $100 for family coverage to $7,100. Workers 55 and older are eligible for a $1,000 catch-up contribution in addition to whichever limit applies to them.
  • To participate in an HSA, your out of pocket maximum cannot exceed a certain threshold. In 2020, these limits will rise to $6,900 for individuals and $13,800 for family coverage.

Contributing to an HSA is a plan that should be considered as HSAs offer flexibility and give the opportunity to invest with tax-free growth. It is important to remember that health plan rules and limitations are adjusted over time, so it is important to review the changes each year.