HSA Deductions Get a Boost

HSA Limits Have Increased

HSA Deductions Get a Boost: Employees who have health savings accounts (HSA) and employers contemplating adding a high deductible healthcare plans (HDHP) can allow employees to take advantage of the latest increase in the contribution limits.

The IRS has just announced that starting in January 2025, the annual deduction for an HSA associated with an HDHP for an individual with self-only coverage is $4,300, a 3.6% increase from the current limit of $4,150. The family plan deduction was increased to $8,550, up 3% from the 2024 limit.

Many individuals and families manage health care expenses by enrolling in HSAs. With the higher contribution limits, participants can plan to set aside more pre-tax funds to pay for qualified medical expenses, which also include certain dental, drug and eyecare costs. Tracking changes to the contribution levels allows you to max out your yearly contributions as they accumulate for the future needs. The benefits of using an HSA plan are many. Employee contributions that fund HSA accounts are often pre-tax payroll deductions. Other tax savings include:

  • the money invested in the account grows without being taxed
  • if withdrawn now, later, or even in retirement for qualified medical expenses, the money is not taxed

With HSA-eligible health insurance, you may pay a lower monthly premium but have a higher deductible. By combining your HSA-eligible insurance plan with an HSA, you can pay the deductible, copayments, coinsurance, plus other qualified medical expenses using money you set aside in your tax-advantaged HSA.


HSA Accounts and Retirement – Your 401(k) Might Not Be Enough

Average 401(k) plan balances had dropped during the pandemic years. According to Vanguard’s “How America Saves 2023” report, 401(k) balances in 2022 were $112,572, down from $141,542 in 2021 and $129,157 in 2020. The 2024 Vanguard report preview indicates that “participants’ retirement plan behavior remained in line with previous years, and most continued to maintain a long-term view.” How much you’ll need to retire, though, depends on how you envision retirement and how health care costs will eat into your savings.

A Bankrate survey in 2023 found that 56% of Americans feel they are behind on where they should be in retirement savings; 37% said they were “significantly behind.”

Health care expenses are often the biggest and most unplanned expenses, particularly in retirement. According to the annual Fidelity Retiree Health Care Cost Estimate, a 65 year old retiree in 2023 could be looking at spending $157,500 to cover total health care expenses in retirement. For an average retired couple that number increases to $315,000. These average expenses of health care in retirement easily can consume the average 401(k) account balance.

Some saavy employees, however, use HSA accounts not only to pay for qualified medical expenses they have now but also for those eventual health care costs that could occur after they have retired. Your HSA balance rolls over year to year, so you can build up reserves to pay for health care and services you’ll need later.


Tax Benefits and Cost Savings

So, by staying on top of changes in contributions and limitations, you can be more prepared for retirement, and for when one of those unexpected medical costs arises.

As 2024 progresses, we can help anticipate the impact of changes to your HSA, retirement and deferred compensation plans. Speak with a Newcleus retirement advisor about a review and analysis of your plans now, so you can plan for maximizing your 2024 and 2025 contributions.