THE HEALTHY TAX BENEFIT

We all are looking for a healthy benefit whether it is a physical, mental, or financial health benefit. Well, the IRS announced last week what could be considered a healthy tax benefit. The annual contribution limit for health savings accounts, or HSAs, will soon get a sizable boost due to inflation.

A Health Savings Account or HSA is a type of personal savings account. You can set up an HSA to pay certain health care costs. An HSA allows you to put money away and withdraw it tax free, as long as you use it for qualified medical expenses, like deductibles, copayments, coinsurance, and more. An HSA can also be used for retirement investing. The main downside of an HSA is that you must have a high-deductible health insurance plan to get one.

The HSA contribution limits for 2023 are $3,850 for self-only coverage and $7,750 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.

For 2024, the yearly limit for self-only HSA plans is increasing to $4,150 and the cap for family plans is jumping to $8,300. The catch-up contribution for savers age 55 and older remains at $1,000 each, bumping the total deposit limit for a couple of older individual savers to $10,300. This jump is an 8% and 7% increase in the contribution limits respectively. Big jump from the average increase of roughly 1.6%.

Health savings accounts (HSA) can offer three main tax benefits:

1. There’s an upfront “above-the-line” deduction for contributions that allows you to claim the tax break even if you don’t itemize deductions. And you can contribute up to the tax deadline.

2. Unlike pretax individual retirement accounts or 401(k) plans, which may also provide an upfront tax break, you can withdraw money anytime tax-free for qualified medical expenses.

3. You can also grow the account tax-free by investing, which can become sort of a retirement nest egg for medical expenses.

However, HSA accounts are not for everyone. It could be an option for people, who fall within one of the following categories:

• You rarely get sick or injured. Folks in their 20s and 30s may be prime targets.

• You can afford to pay your deductible without having to go into debt.

• You're willing to pay your deductible to get medical treatment.

• You have enough money to fund an HSA each month.

• You want another financial way to support your retirement.

• The Out of Pocket Maximum is affordable.

But if you fall in one of these categories an HSA may not be a good fit for you:

• You have little ones or sick dependents.

• You have a chronic condition or need to see a doctor frequently.

• You’re considering or anticipating a big surgery.

• You take several expensive prescription medications.

• You or your children like to partake in high-risk activities.

Bottom line depending on your current circumstances, an HSA account is something to consider looking into when considering medical needs, taxes—and your long-term financial health.

For as my Aunt Myrtle used to say an unturned rock is a wasted opportunity. And when considering our health whether physical, mental, or financial we should leave no rock unturned.