The Maximum HSA Contribution for 2022 & 2023: The IRS has announced an inflation adjustment increase to the maximum HSA contribution for 2023, and there will be in increase over the max HSA contribution for 2022. More specifically, both the individual and family contribution maximums will increase from 2022 to 2023, which is great news for savers. The IRS announces this annual inflation increase for HSAs in May, separate from retirement accounts (e.g. 401Ks, IRAs) in November. And with inflation increasing in the past year, there will be a fairly big jump next year. There will also be increases in minimum annual deductibles and out of pocket expenses. Why should you care about HSA.
The Value of HSA Accounts Has Increased Recently
HSAs could always be used to pay for things like doctors visits, flu shots, prescription drugs, surgery, prescription glasses and contacts, and more. With recent legislation, the value of having an HSA account has increased. With COVID-relief, passed by Congress. It is now possible to use HSA, FSA, and HRA funds for OTC medications and menstrual care products.
Additionally, telehealth and virtual mental health services are now list as qualified medical expenses too, as is testing and treatment of COVID-19, per IRS Notice 2020-15. That means that you can use your tax-preferred Health Savings Account (HSA) funds to pay for expenses incurred for these purposes.
And, in 2019, the IRS provided guidance that HSA-eligible HDHPs should consider a number of popular medical services, medications, and devices, such as insulin, inhalers, and statins as “preventative care“.
HSA Accounts Already Had a High Value Proposition to Savers
HSAs are like IRAs on steroids (tax-free steroids at that). They offer users pre-tax contributions, tax-free investment gains, and tax-free distributions to pay for eligible medical expenses.
With HSAs, you own the account. It goes with you and can be use regardless of future employment status or health plan. This is not the case with FSAs, which are tied to your employer. All benefits aside, your ability to annually contribute to an HSA is determin by whether or not you are enrolled in a high deductible health plan (HDHP), as they are define by the IRS.
The Case for The Maximum HSA Contribution
In most cases, you’ll have to the maximum HSA contribution for the following year during your open enrollment. Your employer will usually let you contribute a specified amount evenly across all pay periods.
Some employers will allow you to make larger contributions towards the end of the year. But you’ll have to check with your HR department.
Here’s why you should consider the maximum HSA contribution as much as you can. If you are young and healthy, health care costs will eventually catch up with you. HSAs allow you to build a significant cushion to protect yourself from future costs.
When you turn 65, you can use HSA funds on not just medical expenses, but anything, without penalty. So there’s little downside to contributing too much. And, remember that the entire time you can grow your contributions through investments, just like any other retirement account.
The decision of whether or not to front load your the maximum HSA contributionin the beginning of the year has some nuances. If you have upcoming expenses and plan to keep your HDHP throughout the year, it could pay off. Otherwise, it can create a bit of a mess to clean up in order to avoid taxes and penalty.