Whether you’re anticipating upcoming medical expenses or seeking a tax-advantaged vehicle for your retirement savings, a health savings account (HSA) can be a valuable asset. However, like any financial tool, comprehending its mechanics is essential for maximizing its benefits. Here are three crucial factors to consider before contributing to an HSA in 2024.
It’s important to note that not everyone is qualified to contribute to a Health Savings Account (HSA). To be eligible, you must possess a qualifying health insurance plan. In 2024, eligibility hinges on having an individual health insurance plan with a deductible of at least $1,600 or a family plan with a deductible of at least $3,200. This represents a slight increase from 2024, where the respective deductible thresholds were $1,500 and $3,000.
Since health insurance providers may change annually based on your employer’s choices, it is imperative to verify your eligibility each year before depositing funds into an HSA, and making contributions when ineligible can lead to complications with the IRS. Ensure you are aware of your health insurance coverage for the upcoming year, and reach out to your plan administrator if you are uncertain about the deductible. If your plan’s deductible falls short of the requirements, consider other accounts, such as IRAs for retirement savings or high-yield savings accounts for forthcoming medical expenses.
In 2024, HSA contribution limits are set to rise, allowing those who qualify to save more money. Individuals can contribute up to $4,150, while families can save up to $8,300.Those who are 55 years old or older have the option to make an extra contribution of $1,000 to their existing limits.
Contributions to your HSA can reduce your taxable income for the year. Furthermore, if you utilize these funds for medical expenses, they remain tax-free. It’s worth noting that non-medical withdrawals are possible, but individuals below 65 will incur a 20% penalty in addition to taxes. Past the age of 65, there is no penalty. However, taxes are still applicable, making it operate similarly to a traditional IRA with the added perk of tax-free withdrawals for medical expenses.
If you want to maximize the value of your HSA funds, consider investing them wisely. While some HSAs function as basic savings accounts with minimal interest earnings, opting for investment options can be more lucrative, especially if you plan to use your HSA for retirement expenses.
Ensure that your HSA provider allows for investment opportunities, or consider switching to an HSA account that offers investment opportunities. Assess both the available investment choices and the associated fees, as fees can impact the growth of your balance over time.
It is advisable to review these considerations annually, as eligibility requirements and contribution limits tend to evolve. Additionally, you may need to adapt your investment strategy over time. Schedule an annual check-in with yourself, ideally in 2024, to effectively plan your HSA contributions for the subsequent year.