You May Be Eligible to Save Over $10K in Your HSA After Largest-Ever Contribution Limit Increase

People with health savings accounts (HSAs) got some good news this week when the IRS rolled out the largest contribution limit increases in history.

In 2024, an individual with self-only coverage can save up to $4,150 in an HSA, while a family can sock away up to $8,300. Catch-up contributions still allow people 55 and older to save an extra $1,000 per year, meaning some married couples will soon be allowed to save more than $10,000 in an HSA.

A financial advisor can help you plan for retirement, including your future healthcare costs. Find an advisor today.

HSAs are tax-advantaged savings vehicles that help people enrolled in high-deductible health plans (HDHPs) save for annual medical expenses. But unlike flexible spending accounts (FSAs), funds in an HSA can be carried over from year to year, making these accounts an important component of long-term financial plans.

Largest Increases on Record

Next year’s HSA contributions limit increases will be the largest on record since HSAs were first introduced in 2003. The IRS adjusts these limits each year to keep pace with inflation.

For individuals, the savings cap will rise 7.8% from $3,850 in 2023, while families will see their limit increase 7.1% from $7,750. A year ago the limits rose 5.5% and 6.2%, respectively. However, persistent inflation is pushing these caps even higher on Jan. 1, 2024.

HSA contribution limits for an individual with single, self-coverage:

HSA contribution limits for an individual with family coverage:

The changes will also affect what constitutes an HDHP. In 2024, health plans will qualify for HSAs if their deductibles are at least $1,600 for self-only coverage and $3,200 for family coverage.

Why HSA Contribution Limits Matter

Higher contribution limits not only mean that people can save more for qualified medical expenses, but they also provide an even larger potential tax break for HSA owners. Since contributions are tax-deductible, higher caps mean a person with an HSA will be able to reduce his taxable income by several hundred dollars more in 2024 than in 2023.

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Of course, that’s not the only tax advantage of an HSA. Money that’s kept in this type of account also grows tax-free and can be withdrawn free of tax, provided it’s used to pay for qualified expenses.

And since HSA funds carry over each year, they’re a great way for pre-retirees to save up for the onerous healthcare expenses they may encounter in retirement.

A recent study from the Employee Benefit Research Institute found that despite the coverage offered by Medicare, retirees should prepare to pay significant out-of-pocket costs for their healthcare. These costs include a wide range of expenses, including insurance premiums, program deductibles and prescription drug treatments.

In fact, even with supplemental Medicare gap insurance, men will need an average of $166,000 in savings to pay for their healthcare needs in retirement. Since women have longer expected lifespans, that number is even higher: $197,000. Meanwhile, the average two-person household should anticipate needing $318,000, according to EBRI.

Bottom Line

With inflation remaining elevated, the IRS has increased the amount of money that individuals and families can save in their HSAs in 2024. The contribution limit increases are the largest on record. People with self-only coverage will be able to sock away $4,150 in 2024, while families will be permitted to save $8,300. The $1,000 catch-up contribution remains unchanged, meaning married couples can save $10,300 in an HSA in 2024.

Tips for Contributing to an HSA

• Some HSAs allow you to invest your contributions in mutual funds and other financial products. Be sure to read our latest HSA investment guide to help you determine how you should invest your HSA funds. Our asset allocation calculator can also help you find an investment mix that suits your tolerance for risk.

• A financial advisor can help you integrate your HSA savings into a comprehensive financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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