Recent data shows that health savings accounts (HSAs) have surged in popularity over the last decade. In 2023, there were approximately 36 million HSAs which held about $116 billion in assets, an increase of about 500 percent since 2013.
There are a few reasons that an increasing number of Americans are opening these types of tax-advantaged savings accounts. Let’s review the rules regarding the HSA. You may just find that opening one is the right decision for you.
The first requirement is that you must have a high deductible health plan, a minimum $1,600 deductible (if single), or a minimum $3,200 deductible (for family coverage of 2 or more people). The numbers below are effective for 2024:
| Minimum Deductible | Maximum Out-of-Pocket | Contribution Limit | 55+ Contribution | ||||
| Single | $1,600 | $8,050 | $4,150 | $1,000 | |||
| Family | $3,200 | $16,100 | $8,300 | $1,000 |
Although the maximum out-of-pocket is high, such high deductibles come with lower premiums. Individuals enrolled in these high deductible health plans can use HSAs to pay for their medical expenses.
The HSA is an account that lets you put aside pre-tax dollars from your income (similar to the FSA) to be used for the medical expenses that you incur during the year. However, unlike the FSA, the HSA has no use-it or lose-it provision. You may even find after a few years, the balance in the account is high enough to cover the maximum out of pocket expense, which would allow you to reduce your deposits for future years.
Consider an example: If a doctor visit costs $150, and as a single person you have three visits over the year, you won’t receive any reimbursements at all, but you will save more than that $450 in reduced premiums as HSA plans typically offer lower monthly premiums than traditional health plans. This could add up to huge savings for the year. For those who have saved the maximum in their 401(k) and/or IRAs, the HSA can provide a great long term solution to save for medical expenses. Although the deposit limit is lower than that of an IRA, it still has the potential to grow significantly over time. In addition, those over 55 can deposit an additional “catch-up” contribution of $1,000.
Health savings account deposits not only avoid federal income but the state tax of most states. By choosing the HSA, you also avoid the 7.65% combined Social Security and Medicare tax since contributions are made with pretax dollars. This can easily add up to a combined tax savings of nearly 40%. As long as you are spending the funds on medical, dental, or vision, the withdrawals remain tax-free.
No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.