Health care is an important expense for many people during their working years. And it often becomes an even heavier expense during retirement.
That is why it is so important to set aside funds for future healthcare costs. And health savings accounts (HSAs) are a big bet in that regard.
HSAs allow you to set aside money for short- and long-term medical costs. Unlike flexible spending accounts (FSAs), HSA funds never expire, which is why HSAs are often considered a retirement savings tool, even though you can access the money in one of these. accounts long before retirement.
What makes HSAs so unique is that they have a triple tax advantage. Contributions are made with tax-free dollars and money that is not withdrawn from an HSA can be invested to increase growth. These gains are then tax-free, as are withdrawals, as long as they are used for qualified medical expenses.
Like the IRA and 401 (k) plans, the annual contribution limits for HSAs may change depending on factors such as inflation. And in 2023, HSA savers will have the option to contribute more money to their accounts.
HSA limits are rising
The amount of money you can contribute to an HSA depends on whether you are saving as an individual or at the family level. If you have coverage for yourself only, you can currently contribute $ 3,650 to an HSA. In 2023, that limit will increase to $ 3,850.
If you have family-level coverage, you can currently contribute $ 7,300 to an HSA. In 2023, that limit will increase to $ 7,750.
It is also worth noting that savers 55 years of age or older are eligible for a $ 1,000 HSA recovery contribution in addition to the above figures. These are similar to the recovery contributions that larger savers can make in IRAs or 401 (k) s.
Eligibility is also changing
Not everyone can fund an HSA. To be eligible, you must be enrolled in a high-deductible health insurance plan. And the definition of that is also changing in 2023.
This year, you can qualify for an HSA with a minimum deductible of $ 1,400 for yourself coverage and $ 2,800 for family coverage. Next year, those lows will increase to $ 1,500 and $ 3,000, respectively.
Meanwhile, the current pocket highs for HSAs are $ 7,050 for self-coverage and $ 14,100 for family-level coverage. In 2023, these will increase to $ 7,500 and $ 15,000, respectively.
It’s important to review the details of your plan and make sure you can still participate in an HSA. An eligible year does not automatically guarantee the same for the following year.
However, if you are eligible to fund an HSA in 2023, it is worthwhile. The money you set aside could grow in a much larger amount over time, allowing you to cover your health care costs for seniors without worries.
Many retirees find that health care is actually their biggest monthly expense, even more so than housing. Therefore, the more money you can contribute to retirement to pay for medical expenses, the less stress you will be likely to have during your old age.
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