IRS reveals 2024 health savings account limits. What to know about the ‘vital enhance,’ says advisor
The annual contribution restrict for health savings accounts, or HSAs, will quickly get a large enhance due to inflation, the IRS announced this week.
For 2024, the yearly restrict for self-only HSA plans is rising to $4,150 from $3,850 in 2023, and the cap for household plans is leaping to $8,300 from $7,750. The catch-up contribution for savers age 55 and older stays at $1,000 every, bumping the complete deposit restrict for a couple of older particular person savers to $10,300
It’s a “vital enhance” compared with historic HSA inflation changes, in accordance to Ashton Lawrence, an authorized monetary planner and director at Mariner Wealth Advisors in Greenville, South Carolina.
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Before 2022, the common yearly enhance for the HSA contribution restrict was roughly 1.6% per yr, Lawrence mentioned, and the bounce from 2023 to 2024 for self-only and household plans will likely be about 8% and seven%, respectively. “It’s extraordinarily advantageous for shoppers,” he added.
Clients ‘typically overlook’ HSA tax advantages
You will need to have a high-deductible health insurance coverage plan to qualify for HSA contributions. Qualifying plans require a deductible of a minimum of $1,600 for self-only protection or $3,200 for a household plan for 2024, in accordance to the IRS.
But those that qualify could not totally perceive how the accounts work. “Clients typically overlook the funding and tax planning advantages of an HSA,” mentioned Judy Brown, a CFP and senior monetary advisor at SC&H Group in the Washington and Baltimore space. She can also be an authorized public accountant.
Health savings accounts provide three tax advantages:
- There’s an upfront “above-the-line” deduction for contributions that permits you to declare the tax break even if you happen to do not itemize deductions. And you’ll be able to contribute up to the tax deadline, that means you can also make 2024 deposits up to the submitting due date in 2025.
- Unlike pretax individual retirement accounts or 401(ok) plans, which can additionally present an upfront tax break, you’ll be able to withdraw cash anytime tax-free for qualified medical expenses.
- You may develop the account tax-free by investing, which might turn out to be a “retirement nest egg for medical bills,” Brown mentioned. But most Americans do not use HSAs for that objective. Some 62% of account holders spend the cash on year-to-year or near-term bills, in accordance to an April 2023 report from the Employee Benefit Research Institute.
“The HSA is a wonderful possibility to do one thing that the IRS hardly ever permits, which is having your cake and consuming it as effectively,” with the preliminary tax break and future tax-free withdrawal, mentioned Jim DeGaetano, a CFP and founding father of Diamond Wealth Advisors in Carlisle, Pennsylvania. He can also be a CPA.