Reach for the HSA Limit
It’s the waning days of 2018, which means it’s an ideal time for HR pros to remind eligible employees about the approaching deadline to contribute to their Health Savings Accounts (HSAs). Plus, there are at least 10 reasons to consider maxing out an HSA.
Sending a reminder is especially helpful if your company’s annual health plan enrollment runs mid-year. Employees may not realize that health savings account (HSA) contribution limits always align to the calendar tax year (vs the plan year).
Also, don’t forget to remind your new hires who joined mid-year.
HSA Contribution Limits for 2018
IRS limits align with the calendar tax year*:
- Individual only: $3,450
- Family: $6,900
- HSA owners who will turn 55 by year-end (or are older) can contribute an additional $1,000 “catch up” amount per year.
* Like a 401(k), HSA account holders have until the 2018 tax filing deadline (April 15, 2019) to meet the HSA contribution limit for 2018.
Top 10 Reasons to Max Out an HSA
- HSAs are like a “health 401(k).” Dip into HSA funds anytime to pay for qualified expenses, or—even better—
- Let funds build to pay for qualified health care expenses after you retire. (The list of qualified expenses is surprisingly long).
- It’s a personal account. You keep your HSA if you switch jobs or retire, and funds rollover year-after-year.
- HSAs are triple tax-advantaged. Contributions aren’t federally taxed; funds grow tax-free; and, funds used to pay for qualified expenses aren’t taxed! (Most state laws treat HSAs similarly, but there are exceptions).
- A family member can even contribute to your HSA!
- While you must have an HSA-eligible plan to contribute to an HSA, you can always spend funds on qualified health expenses. Even if, in the future, you’re no longer on an HSA-eligible plan.
- Once you’re 65 or older, you can use HSA funds for any reason. Taxes will apply for non-qualified expenses, but there’s no longer a 20% penalty.
- There’s no time limit for reimbursing yourself. As long as you had an HSA when you incurred the qualified expense, it makes no difference how much time has passed.
- If you ever have an unexpected medical cost, funds are immediately and readily available for qualified health expenses.
- Funds can be used on you, your spouse, and anyone you claim on your Federal Income Taxes—even if they are not on your health plan.
Moving into 2019 and Beyond
As healthcare costs continue to rise, Health Savings Accounts will continue to be a powerful tool for reducing expenses for employees and employers. Because HSA funds can be used to pay medical bills at any time, it can be a good strategy to encourage employees to max out contributions to an HSA first, at the beginning of a plan year, then focus on maxing out their 401(k). If you found this content useful, we hope you’ll follow us on LinkedIn.
For further reading, check out our 4-part series on “How to Drive HSA Adoption”:
- Step 1: Seed Early Adopters
- Step 2: Find Your Employer Contribution Sweet Spot
- Step 3: Mitigate Employee Risk with Your Plan Design
- Step 4: Educate Employees