The new limits for health savings accounts (HSA) for 2020 are going up $50 for individual coverage and $100 for family coverage, the IRS announced last week, bringing them to $3,550 and $7,100, respectively. The catch-up contribution limit for those over age 55 will remain at $1,000.
The annual limit on HSA contributions will be $3,550 for self-only and $7,100 for family coverage.
The contributions to an HSA are tax-deductible, and the account's earnings (if invested) are tax-free, as are withdrawals for eligible medical expenses.
The slightly longer answer: If you're covered by a high-deductible health plan (HDHP), the IRS allows you to put as much as $3,550 per year (in 2020) into your health savings account (HSA). If you're contributing to an HSA, and on a family HDHP, the maximum amount that you can contribute is $7,100 per year (in 2020).
Your Maximum Contribution
As of 2017, you can contribute a maximum of $3,400 to an individual HSA or $6,750 to an HSA for your family, according to the IRS. If you're 55 or older, you get to contribute another $1,000 on top of that.
You'll Pay a Penalty for Non-Qualified Medical Expenses
Because this account is intended to be used for medical expenses only, if you take money out of an HSA for non-medical reasons, you will have to pay taxes on it.
Each spouse may individually open and contribute to their own HSA, or. Only one spouse opens an HSA, and only that spouse may contribute to the HSA.
There are also some serious drawbacks. Here's one: If you use your HSA savings for non-qualified expenses before age 65, “you'll owe an additional 20% penalty in addition to any taxes due,” Ulreich said. Generally, qualified expenses for HSAs are the same as those for claiming the medical expense deduction.
A Health Savings Account, or HSA, is a savings account with a unique triple tax benefit. Contributions reduce taxable income, their growth within the account is tax-free, and qualified withdrawals (that is, ones used for medical expenses) are also tax-free.
Under IRS rules, that leaves you liable to pay six months' of tax penalties on your HSA. To avoid the penalties, you need to stop contributing to your account six months before you apply for Social Security retirement benefits.
The tax benefits are so good that some financial planners say to max out your HSA before contributing to an IRA. ... You don't pay any taxes upon withdrawal as long as you use the money to pay qualified medical expenses or qualified health insurance premiums if you're over the age of 65.
You may use your HSA funds to pay for the qualified medical expenses of family members; however, the amount you may contribute to your HSA is limited by the level of your insurance coverage. Do I need to fund my entire HSA all at once or can I fund it over time? You can fund your account over time or all at once.
Contributions made to your HSA by your employer may be excluded from your gross income. The contributions remain in your account until you use them. The earnings in the account aren't taxed. Distributions used to pay for qualified medical expenses are tax-free.
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