*by Kevin Rigg, Director of Financial Life Planning, Lead Advisor, CFP®, CPA*

The IRS recently released the 2024 contribution limits for health savings accounts (HSAs), as well as the 2024 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs).

What is an HSA?

An HSA is a tax-advantaged account that enables you to save money to cover healthcare and medical costs that your insurance doesn't pay. You can establish and contribute to an HSA only if you are enrolled in an HDHP, which offers "catastrophic" health coverage and pays benefits only after you've satisfied a high annual deductible. The funds contributed are made with pre-tax dollars if you contribute via payroll deduction or are tax deductible if you make them yourself using after-tax dollars.

HSA withdrawals used to pay qualified medical expenses are free from federal income tax. If not used to pay qualified medical expenses, withdrawals are subject to ordinary income tax and a 20% penalty. When you reach age 65, you can withdraw money from your HSA for any purpose; such a withdrawal would be subject to income tax if not used for qualified medical expenses, but not the 20% penalty.

What's changed for 2024?

Here are the updated key tax numbers relating to HSAs for 2023 and 2024.

If you plan to maximize contributions to an HSA in 2024, please make sure to update your payroll elections to match the new contribution limits shown above. If this applies to your situation, you can expect your advisor to go over this along with other tax planning issues prior to year-end.