For those of you who want the quick answer: the HSA contribution limits for 2019 are $3,500 for an individual and $7,000 for a family. If you are 55 or older your catch-up contributions are limited to an extra $1,000 a year.
If you are a bit confused about what an HSA is, it stands for Health Savings Account. It’s a tax-free savings account you can open to help you pay for qualified medical expenses.
If you don’t spend it, you can withdraw your savings and investments when you retire tax-free, like a Roth IRA.
To be HSA-eligible, your health plan has to meet the IRS criteria for a high-deductible health plan (HDHP). More on that below.
Read on to find out how an HSA works and the criteria you have to fulfill to be able to have one.
How HSAs Work
An HSA is only available with high deductible health plans.
You don’t pay any taxes on the money you put into an HSA. You also won’t pay taxes when you take money out of your HSA to pay for eligible health-related expenses. This includes health care expenses your health plan doesn’t cover. You can find examples of what you can and can’t spend your HSA on in IRS publication 502.
You can also use your HSA to help you pay for your annual deductible. We talk a bit more on how that works here.
If you go through your employer and choose a high deductible health insurance plan, you are likely eligible for an HSA. Here you and your employer contribute to the savings account, before payroll tax kicks in, until you hit the annual contribution limit.
You and your employer both contribute to your HSA. If you leave your job, you can take your HSA with you to your new job. This is different from a Health Reimbursement Arrangement (HRA) which has the same purpose, but only your employer contributes and its owned by your employer.
An HSA has several tax advantages (which we talk more about here). It’s 100% tax deductible from your gross income, meaning that your tax burden could be lower come tax season.
Changes to the HSA Contribution Limits
The IRS announced the annual HSA contributions for 2019 as part of the release of Revenue Procedure 2018-30.
HSA Contribution Limit
for both you and your employer
- $3,500 – Self-only Coverage
- $7,000 – Family Coverage
HSA catch-up contributions
if you’re 55+
- $1,000 – Self-only Coverage
- $1,000 – Family Coverage ($2000 if you & a spouse)
If you go over the annual limits, the Internal Revenue Service may charge you a 6% excise tax on these excess contributions. This tax applies every year the excess contribution remains in the account.
Changes to the HDHP Guidelines
To be an eligible individual for an HSA, your health care plan must be what the IRS calls an HDHP plan, a high-deductible healthcare plan.
To qualify as an HDHP the annual out-of-pocket expenses and the minimum deductibles have to agree with the IRS guidelines. Here are what they are for 2019 and how they compare to 2018.
HDHP minimum deductible for individuals
- $1,350 for 2019
- $1,350 for 2018
- No change
HDHP minimum deductible for families
- $2,700 for 2019
- $2,700 for 2018
- No change
HDHP maximum out-of-pocket for individuals
- $6,750 for 2019
- $6,650 for 2018
- $100 increase
HDHP maximum out-of-pocket for families
- $13,500 for 2019
- $13,300 for 2018
- $200 increase
Because of the tax savings an HSA offer, between you and your employer it’s best to contribute as much as the annual limits allow.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.