The annual contribution limits for health savings accounts will rise again in 2023.
After raising the limits in each of the past three years, the IRS has announced that it will raise them again for 2023 to account for inflation.
The new limits are:
- $3,850 for someone with self-only health insurance coverage (up from $3,650 for 2022).
- $7,750 for someone with family coverage (up from $7,300 for 2022).
The IRS did not announce any change to the limit for catch-up contributions. These extra contributions allow folks age 55 and older to save an additional $1,000 per year in an HSA. So, for 2023, someone who is at least 55 can contribute a total of $4,850 or $8,750 to an HSA, depending on what type of plan they have.
The rising annual contribution limits are great news for anyone who is eligible to use an HSA, as this type of account offers a combination of tax-reducing features that is unrivaled, even by retirement plans like 401(k)s or individual retirement accounts.
What is a health savings account?
An HSA is an account into which you can deposit a certain amount of money each year to be used to reimburse yourself for eligible medical expenses.
You also may be able to use an HSA as a savings account or an investment account, depending on the account custodian.
Money Talks News partner Lively is an example of an HSA custodian that gives account holders the option to invest the money they put in their HSA in mutual funds and other similar types of investments. However, not all custodians allow account holders to invest.
As we explain in “3 Ways a Health Savings Account Can Improve Your Finances,” HSAs offer a trio of tax advantages:
- Your contributions are tax-deductible in the tax year for which they are made.
- Gains on your contributions are tax-free.
- Your withdrawals are tax-free if you use them to pay for qualifying health care expenses.
In other words, you will never owe taxes on money that goes through an HSA, provided that you follow the IRS rules for HSAs and make withdrawals for qualifying health care expenses. Not even a retirement account like a Roth IRA offers that degree of lawful tax avoidance.
Additionally, you do not need to earn income to contribute to an HSA, unlike most retirement accounts.
Who is eligible for a health savings account?
The bad news about HSAs is that not everyone is eligible for one. They’re designed to be used by folks with high-deductible health insurance plans.
For 2023, the IRS defines such plans as having annual deductibles of at least:
- $1,500 for self-only coverage (up from $1,400 in 2022)
- $3,000 for family coverage (up from $2,800 in 2022)
For 2023, such plans also must have annual out-of-pocket expenses — defined as “deductibles, co-payments, and other amounts, but not premiums” — of no more than:
- $7,500 for self-only coverage (up from $7,050 for 2022)
- $15,000 for family coverage (up from $14,100 for 2022)
There are a few other limitations on who can have an HSA. For example, folks on Medicare are ineligible.
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Source: moneytalksnews.com