HSA getting better

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DH and I are not eligible for an HSA account but it’s worth looking into for those who are not covered by Medicare.

Couples Can Soon Put Over $10,000 a Year Into Health Savings Accounts

IRS announces higher HSA contribution limits for 2024

By Ashlea Ebeling, The Wall Street Journal, Updated May 17, 2023

The Internal Revenue Service on Tuesday announced the largest ever increase to the amount Americans can set aside in health-savings accounts each year.

For 2024, the maximum HSA contribution will be $8,300 for a family and $4,150 for an individual. That is up from $7,750 for a family and $3,850 for an individual for 2023.

Participants age 55 and older can contribute an extra $1,000, which means an older married couple could sock away $10,300 a year, up from $9,750 this year. In the last 10 years leading up to retirement, a couple could accumulate more than $100,000 in these accounts…

To be eligible to contribute, a participant must have an HSA-qualified high-deductible health plan and not be enrolled in Medicare…

While workers can tap 401(k)s and individual retirement accounts for medical costs, health savings accounts offer more tax savings than both traditional or Roth retirement accounts. There is no tax going in, tax-free growth and tax-free withdrawals if used for eligible healthcare expenses.

Eligible medical expenses include Medicare Part B premiums, which run almost $4,000 for a married couple with income of up to $194,000 for 2023. Also eligible are deductibles, copays and vision, dental and hearing expenses, and even long-term care…[end quote]

It’s worth looking into this if you are still working.

Wendy

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Or even if you aren’t!

@aj485 I cannot find any limitation regarding earned wage income as far as HSA contributions are concerned.

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No, there are no income limits, nor any requirement to have earned income in order to make an HSA contribution. The only requirement to make HSA contributions is to have an HDHP policy as your ONLY health coverage.

The HSA deduction is an ‘above the line’ deduction, so it directly decreases your AGI, not just your taxable income like standard/itemized deductions do. I will say that in order to take the best advantage of this rule, you should have at least as much ordinary income as your HSA contribution plus your standard/itemized deduction amount, in order to shelter ordinary income rather than capital gains income.

Unfortunately, if you’re not working, aren’t on a spouse’s employer’s plan, and aren’t on COBRA, you’re probably on ACA. What I have found with ACA coverage is that the HDHP policy in my area is only offered at the Bronze level, and it is not the lowest premium policy, even though it also has higher deductibles and higher out of pocket maximums than other Bronze level policies. So, I’ve chosen to forgo getting an ACA HDHP this year and am not making an HSA contribution for 2023.

Of course, YMMV because ACA offerings are varied by locality within a state, not just by state.

AJ

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The HSA is the greatest early retirement vehicle ever created. Contributions are even exempt from FICA. Like most tax benefits, it is designed to primarily benefit the well-to-do, so it is tough for lower income people to take advantage, but I assume it is of interest for most working METARites. The secret sauce is that there is no time limit on claiming expenses. So if you can afford to pay out of pocket for most medical expenses, you can let the tax-free growth continue as long as you like (up to age 65), and then take the tax free withdrawals. The only catch is you need to track and document your qualified expenses. But the qualified expense category is pretty broad. It includes most over the counter meds, most dental (except cosmetic), most optical, etc. So it is easy to rack up a lot of qualified expenses. Worst case is at age 65 it effectively becomes a traditional IRA.

HSAs are the bomb.com if you can swing it.

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They are only exempt from FICA if you make the contributions through payroll deductions.

I will point out that HSAs are the worst type of account for a non-spouse to inherit. (Spouses can just use the HSA as their own.) The HSA must be fully distributed within 12 months to a non-spouse beneficiary and is fully taxable as ordinary income upon distribution. (Not even the 10 year clock that is allowed for retirement account distribution, although there is no penalty assessed to the non-spouse beneficiary.) For those 12 months, a non-spouse beneficiary can use HSA funds to pay for the decedent’s qualified medical expenses, which will reduce the taxable amount received by the beneficiary - but if the beneficiary of the HSA is not the only beneficiary of the estate, they will be benefitting the other estate beneficiaries just to save on taxes.

The moral of this story is - try to use your entire HSA before you die if your beneficiary will not be your spouse.

AJ

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