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Health Savings Accounts (HSAs) are a popular way to save for medical expenses with tax advantages. Understanding the key rules can help you maximize benefits and avoid penalties. This article outlines essential HSA rules for better money management.
Contribution Limits
Each year, the IRS sets contribution limits for HSAs. For 2024, the limits are $4,150 for individual coverage and $8,300 for family coverage. People aged 55 and older can contribute an additional $1,000 as a catch-up contribution.
Eligible Expenses
HSAs can be used to pay for qualified medical expenses, including doctor visits, prescriptions, and dental care. Non-qualified expenses are subject to income tax and a 20% penalty if taken before age 65.
Tax Benefits
Contributions to an HSA are tax-deductible, reducing your taxable income. Earnings grow tax-free, and withdrawals for qualified expenses are also tax-free. Proper management can lead to significant tax savings over time.
Important Rules to Remember
- Keep receipts: Maintain records of all medical expenses paid with HSA funds.
- Avoid non-qualified withdrawals: Penalties apply if funds are used for non-qualified expenses before age 65.
- Stay within contribution limits: Excess contributions may incur penalties.
- Use it or lose it: Unused funds roll over year to year, but there is no deadline to spend.