Health Savings Accounts (HSAs) have gained popularity over the years and recently have been seen moreover as a long term savings vehicle to cover health expenses down the road. The ability to invest HSA funds in non-cash investment vehicles such as mutual funds & ETFs to give yourself potential growth beyond inflation has influenced this. Year over year contribution limits have grown, making this a great saving tool.
For 2024, HSAs have received a big bump in contribution limits as detailed below:
Individual: $4,150 (A $300 increase)
Family: $8,300 (A $550 increase)
HSA Over 55 Catch Up: $1,000
The Catch up contribution is intended for those 55 and over and allows an additional $1,000 total into your collective HSAs, increasing your overall contribution.
These represent around a 7% increase from previous years and give families even more flexibility when saving for ever rising costs of healthcare. It is important to ensure that you are on a high deductible health plan in order to qualify for contributions to this type of account.
Typically HSAs are available through your employer who contracts with a custodian to hold the account, similar to a bank or investment account. Individuals who are not W2 employed or don’t have access to an HSA as a benefit can still enroll in an HSA directly with a provider.
These funds do not expire like with an FSA, and can be used whenever and wherever to cover the cost of a qualified health expense. There are no income minimums or maximums, but know that one cannot contribute to an HSA once Medicare has started.
Here are some other common questions on HSAs that we often receive:
WHAT ARE SOME QUALIFYING HEALTH EXPENSES OTHER THAN A VISIT TO MY DOCTOR?
There are many items that can be covered by your HSA. Dental and Vision care, prescription drugs, immunizations, fertility related expenses, emergency services, psychiatric care among others are covered.
Vitamins, personal hygiene items, and usually gym memberships are not covered.
What happens if I go past the Annual limit?
It is unwise to overcontribute to your HSA. Any excess funds beyond the limit are not tax-deductible, and incur a 6% penalty, including the interest or growth earned on those extra funds.
You need to remove excess contributions prior to that year’s tax deadline. For example, if you overcontribute for 2023, you must remove the extra contribution by April 15, 2024 to avoid penalties, including any interest earned on that extra amount. Work directly with your HSA custodian and planner for the best way to go about this.
ARE MY FUNDS INSTANTLY ACCESSIBLE IF I CHOOSE TO INVEST MY FUNDS IN A NON-CASH WAY?
Some HSAs offer the ability to invest the funds, meaning a portion would be in cash, readily available, and another portion could be invested. Typically, invested HSA funds are earmarked for health related expenses down the road, and/or possibly to be used in retirement to pay for costs medicare does not cover or only covers a partial amount. Therefore, to access any invested funds in an HSA the investment(s) would need to be converted to Cash prior to being withdrawn to cover an expense. It is advised to seek help from an advisor to help determine an appropriate investment and savings strategy for your HSA. While some companies may not focus on HSAs, Navigate considers HSAs a crucial part of the financial plan, and we can help you develop a clear and concise strategy for utilizing your HSA funds including selecting an appropriate investment and mix of cash/investment portion of the HSA.