What is an HSA "Catch-Up" Contribution?

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Health Savings Accounts (HSA) all have a maximum contribution to them. Luckily as you get older, that contribution changes to help you save more funds for retirement. Learn more about these "catch-up" contributions in this article.

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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.” In 2020, if you’re eligible for the catch-up contribution you can add an extra $1,000 to your HSA contribution.

2020 HSA contribution limit if you are younger than 55

If you are enrolled in a high deductible health plan (HDHP) that is HSA-eligible, you can contribute:

$3,550 to an HSA tied to an HDHP that covers just you. $7,100 to an HSA tied to an HDHP that covers your family.

2020 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:

$4,550 to an HSA tied to an HDHP that covers just you. $8,100 to an HSA tied to an HDHP that covers your family.

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.

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.