Every dollar you save in a Health Savings Account (HSA) gives you three valuable tax breaks. Contributions you make this year to an HSA reduce your taxable income reported to the IRS. There is no annual tax bill on money that remains in your HSA account. When you withdraw money from an HSA — it can be next week or 30 years from now —— you will not owe any tax as long as the money is used to pay a qualified medical expense. You can use our HSA Eligibility List to see what items are considered a qualified medical expense.

Those are three powerful reasons to contribute to an HSA. The one catch is that there is an annual limit to how much you can contribute to an HSA. The good news is that if you are at least 55 years old you are allowed to make an additional “catch-up contribution.” Currently, if you’re eligible for the catch-up contribution you can add an extra $1,000 to your HSA contribution.

What are catch-up contributions?

In 2001, Congress introduced tax legislation to future retirees catch up on retirement savings through HSA contributions. The Economic Growth and Tax Relief Reconciliation Act of 2001 became effective January 1, 2002. It applied to retirement plans, such as a 401k or IRA, and allows the following.

• Additional annual contribution to qualified retirement plan for eligible individuals 50 and older.

• The catch-up contributions are in addition to the year’s standard limit.

• IRS sets the maximum catch-up contribution amount each year.

Here's how catch-up contributions also apply to Health Savings Accounts and important rules you need to know.

HSA contribution limits if you are younger than 55

If you are enrolled in a high deductible health plan (HDHP) that is HSA-eligible, you can contribute the IRS sets HSA annual contribution limits that differ for individuals and families.

HSA catch-up contribution limit if you are at least 55

If you are enrolled in a high deductible health plan (HDHP) that is HSA-eligible, and you are at least 55 years old –or will turn 55 any time in the calendar year — you can make an additional $1,000 contribution to an HSA.

Catch-up contributions if you are married

If you and your spouse are 55 or older you can both make a $1,000 catch-up contribution to your HSA. However, your spouse must have a separate account in their own name and put their contribution in that account — you cannot put $1,000 each into the same account.

The HSA account must be in the name of the person making the catch-up contribution.

For example, if you had family coverage you could have one HSA account in one spouse's name where you could contribute up the annual limit for a family plus $1,000 catch-up contribution, and a separate account for the other spouse, who could contribute the catch-up contribution only.

Depending on your coverage, you could also each have separate, individual HSA accounts where you contribute up to the annual limit for individual accounts in addition to your separate $1,000 catch-up contributions. The key rule to remember is that you cannot contribute more than $1,000 to one account and you cannot exceed the annual limit set by the IRS + catch up contribution.

What happens when you turn 65

Once you are enrolled in Medicare — typically age 65 — you are no longer allowed to contribute to an HSA. But using the 10-year window between the ages of 55 and 65 to make higher “catch-up” contributions can be valuable come retirement. Saving that extra $1,000 a year for 10 years and earning an annualized 5% would give you around $13,200 in tax-free dollars at age 65 you could use for out-of-pocket medical expenses at any time in retirement.

If you'd like to open an HSA or transfer your HSA funds to Lively, don't hesitate to reach out to us.