HSA contribution limits: How are they changing in 2024?

An image of a piggy bank next to a medical stethascope

HSA contribution limits will increase significantly in 2024

(Image credit: Nudphon Phuengsuwan / Getty Images)

published 25 May 2023

Health savings accounts, or HSAs, are already a great way to set aside money for medical costs, and they're about to get even better. The IRS recently announced that for 2024 it is making what The Wall Street Journal described as "the largest ever increase to the amount Americans can set aside in health savings accounts each year."

How are HSAs going to change in 2024?

The 2023 limits were $7,750 for a family and $3,850 for an individual, meaning the 2024 increases are jumps of around 7% and 8%, respectively. Typically, "HSA caps are boosted each year by only about 1.5%, or $100 to $200, if at all," USA Today reported. The IRS said it's making these larger-than-usual increases in an effort to keep up with high inflation.

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Who can contribute to an HSA?

Not just anyone can open a health savings account. To get one, you must have a high-deductible health insurance plan that offers access to an HSA (not all do) and you cannot be enrolled in Medicare. Qualifying plans "require a deductible of at least $1,600 for self-only coverage or $3,200 for a family plan for 2024," CNBC explained.

If you don't qualify, there are two ways you can contribute to an HSA, Nerdwallet said: Your employer can set up payroll deductions, or you can make your contributions directly.

What are the benefits of saving with an HSA?

The tax benefits of an HSA are three-fold, as Forbes explained: "Contributions to your account are made pre-tax, lowering your taxable income today; investments grow tax free while they're kept in the account; and withdrawals are free of income tax, as long as you use the money for qualified medical expenses."

While that might sound similar to what you'd get with retirement plans like a 401(k) or an IRA, these benefits are "even better with an HSA, if you use it correctly," Forbes said. "You aren't taxed on either end if HSA withdrawals are qualified. It combines the best tax features of a Roth and a tax-deferred account," Brandon Renfro, a certified financial planner and assistant professor of finance at East Texas Baptist University, told the website.

"Contributions to an HSA are immediately tax-deductible," Jason Bornhorst, co-founder and chief executive of benefits platform First Dollar, explained to USA Today. As an example, "if a 55-year-old couple with household income of $100,000 and a 22% tax rate contributes the maximum next year of $10,300, they'll save $2,266 off the bat in taxes," said Bornhorst. "Just those tax savings alone will pay for most people's family vacation."

How can you use HSA funds?

The obvious use for funds stashed in an HSA is medical costs. This can include expenses like "deductibles, copayments, vision, dental, hearing, and even long-term care," per USA Today.

However, there's also a less obvious but perhaps even more compelling use for HSAs: as a retirement planning tool. Unlike with a flexible spending account (FSA), which is another type of workplace account for health care costs, you don't lose the money in your HSA if you don't spend it in a given year. "There are no deadlines to withdraw funds, even if you no longer have the same high-deductible health plan," Nerdwallet explained. Plus, because you can invest your HSA funds, "the money can continue to grow tax-deferred and be used tax-free to pay for qualifying medical expenses at any time," the financial planning website said.

Ideally, you'd earmark those funds for medical expenses you incur in retirement, which can be substantial. But if you've overshot your medical savings, you can use HSA money for anything after you turn 65, though you will need to pay taxes on withdrawals you don't use to cover medical costs. (Note that when you're under 65, if you use HSA funds for expenses other than medical, you can face an additional 20% medical tax, per Nerdwallet.)

And if you have money leftover in your HSA when you pass away, it's possible to pass on your HSA. According to Forbes, "your spouse can inherit the account and turn it into their own HSA, keeping the same tax benefits on the savings." It's also possible to pass your HSA to someone who isn't your spouse, though "they'll owe tax on the entire HSA balance right away."

How can you best use an HSA to save money?

With all of these potential benefits at your disposal, it makes sense to try to make the most of your health savings account. Here are some tips:

Make sure your extra funds are getting invested: Unlike your 401(k) plan, which might automatically invest your money, it's entirely up to you to see that your HSA funds get invested. And it's critical for that to happen for your HSA funds to reach their full potential. "The average total balance (including both deposits and investments) for someone who is investing in their HSA was $16,397 at the end of 2022," the Journal said. "That compares with an average HSA balance of $2,445 for those with deposit accounts but not investing."
Don't forget your HSA from an old job: Another fun fact about HSAs is that they are "yours to keep even after you leave an employer," the Journal added. As such, it's important not to forget about those funds if you change jobs. While you could try to transfer your old balance to your new HSA, it might not be so simple. Another option is to just use them both, but in different ways. "You could think of one, 'This is my forced savings account,' and think of the other as 'This is my reimbursement account,'" Roy Ramthun, who led the Treasury Department's implementation of HSAs after Congress created them in 2003, told the Journal.
Keep contributing up until the tax deadline: It's possible to keep putting money into your HSA up until the tax filing deadline, which means "you can make 2024 deposits up to the filing due date in 2025," CNBC said. This can allow for a "last-minute way to cut your tax bill," Nerdwallet added.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week.

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Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.