Summer is just underway, but before you know it we'll be watching football, decorating for the holidays and choosing health insurance through annual enrollment. (One of these things is not like the other!) As health insurance premiums continue to rise, many individuals and employers are implementing high-deductible health plans (HDHP). These plans offer lower monthly premiums in exchange for a higher annual deductible, and are often paired with health savings accounts (HSAs).
The HSA allows the enrollee to save toward their qualified medical expenses in a tax-friendly manner. Unlike a flex spending account, these accounts can accumulate and grow over time if the funds are unused and carry forward into future years. It's important to remember you must use distributions from the HSA for qualified medical expenses, or they will be subject to your income tax rate and a 20% penalty (unless you meet certain exceptions).
Why Use an HSA?
HSAs deliver a tax benefit triple threat:
- Funds enter the account tax-free
- Funds grow tax-free
- Funds, when used for eligible medical expenses, remain tax-free
Some employers even make contributions to employee HSA accounts on behalf of those employees making contributions on their own, similar to 401(k) matching contributions.
2019 Limits Announced
Each year the IRS adjusts the contribution limits for inflation. For 2019, the annual limit on deductible contributions are:
- $3,500 for self-only coverage (up $50 from 2018)
- $7,000 for family coverage (up $100 from 2018)
- $1,000 additional catch-up for individuals age 55 or older (unchanged from 2018)
Keep in mind that when an employer contributes to your HSA account, those contributions reduce the total amounts listed above.
The 2019 inflation-adjusted out-of-pocket (OOP) limits for a health plan to qualify as an HDHP are:
- Minimum $1,350 for self-only coverage; $2,700 for family coverage (unchanged from 2018)
- Maximum $6,750 for self-only coverage; $13,500 for family coverage (an increase of $100 and $200, respectively from 2018)
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.