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Health Savings Accounts (HSAs) are popular tools for managing healthcare expenses. Understanding the rules governing contributions is essential to maximize benefits and avoid penalties. This article covers key HSA contribution rules you should know before contributing.
Eligibility Requirements
To contribute to an HSA, individuals must meet specific eligibility criteria. They must be enrolled in a high-deductible health plan (HDHP) and not be covered by other non-HDHP health insurance. Additionally, they should not be enrolled in Medicare or claimed as a dependent on someone else’s tax return.
Contribution Limits
The IRS sets annual contribution limits for HSAs. For 2023, the limit is $3,850 for individual coverage and $7,750 for family coverage. These limits include both employee and employer contributions. Catch-up contributions of $1,000 are allowed for individuals aged 55 and older.
Contribution Timing and Penalties
Contributions can be made at any time during the year or up to the tax filing deadline, typically April 15 of the following year. Excess contributions beyond the IRS limit are subject to a 6% penalty annually until they are withdrawn or corrected. It is important to monitor contributions to avoid penalties.
Additional Considerations
- Contributions made by an employer are also counted toward the annual limit.
- Funds in an HSA roll over year to year without expiration.
- Withdrawals for qualified medical expenses are tax-free.
- Non-qualified withdrawals are subject to income tax and a penalty if under age 65.