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Health Savings Accounts (HSAs) offer tax advantages for individuals saving for medical expenses. Understanding the rules governing HSAs is essential to maximize benefits and avoid penalties. This cheat sheet provides key information to consider before making your next contribution.
Contribution Limits
The IRS sets annual contribution limits for HSAs. For 2024, the limits are $3,850 for individual coverage and $7,750 for family coverage. Individuals aged 55 and older can contribute an additional $1,000 as a catch-up contribution.
Eligibility Requirements
To contribute to an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). You cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return. Additionally, you must not have other disqualifying coverage, such as certain flexible spending accounts (FSAs).
Tax Implications
Contributions to an HSA are tax-deductible, reducing your taxable income. Earnings grow tax-free, and withdrawals used for qualified medical expenses are also tax-free. However, non-qualified withdrawals are subject to income tax and a 20% penalty if taken before age 65.
Important Rules to Remember
- Contribute only up to the annual limit to avoid penalties.
- Use funds exclusively for qualified medical expenses.
- Keep records of all medical expenses paid with HSA funds.
- Monitor your eligibility status annually.