What are the 2018 HSA contribution limits?

HSAs are typically used to supplement medical costs and they can cover much more than just medications and doctor visits. There are many benefits to opening an HSA, but how much are we allowed to contribute to them? The 2018 HSA contribution limits maximum is $3,450 for an individual and $6,900 for a family.

Savers aged 55 and over can make an optional catch-up contribution of up to $1,000 each year.

The Low-Down on HSAs

A Health Savings Account is a savings account you use for healthcare expenses a bit like a medical IRA. It works hand-in-hand with healthcare insurance to help you meet your out-of-pocket medical expenses such as deductibles and medical costs not covered by your health plan. You might be surprised by what an HSA can cover– from sunscreen to gym memberships, here is a list of surprisingly eligible HSA expenses. HSAs have tax-free contribution limits that may vary by year and restrictions on eligibility; the 2018 HSA contribution limits have risen $50 for individuals and $150 for families in the past year.

The 2018 HSA contribution limits is $3,450 for an individual and $6,900 for a family.

Advantages of an HSA

The major advantage of an HSA is that it is treated favorably for tax, so:

• You don’t pay tax on contributions up to the maximum annual contribution limit. Depending on your employer’s plan, you either deduct your HSA contributions from your taxes or your employer takes contributions directly from your paycheck before taxes are applied.
• Interest you earn on the account is tax-free.
• You can withdraw money from your HSA to pay just about any kind of healthcare expense, and you don’t pay tax on these withdrawals.
• You can use the HSA to pay for medical expenses for your spouse or a dependent without tax penalty.
• Once you reach the age of 65, you can withdraw money from the HSA for non-medical expenses, also tax-free.

All in all, depositing cash into an HSA can save a fair chunk of taxes, as this calculator shows.

What’s the Drawback?

There’s really only one drawback to an HSA.

Just remember, it must be paired with a high-deductible health plan (HDHP). An HDHP is a plan with lower premiums but a relatively high annual deductible, the amount you pay out of your own pocket before your insurance kicks in, as determined by your insurance provider.

In 2018, the IRS defines an HDHP as a plan with a minimum annual deductible of $1,350 for individuals. For families, the minimum deductible is $2,700. The maximum permissible deductible, along with other out-of-pocket expenses, is $6,650 for individuals and $13,300 for family coverage.

Policies with deductibles outside these ranges do not qualify as an HDHP, so if you belong to one of these, you are not eligible to open an HSA.

You also won’t be eligible to open an HSA if you’re enrolled in Medicare or any other non-compatible plan, or if someone can claim you as a dependent on their tax return.

In a nutshell, HSAs provide a tax-advantaged way of saving for current and future health care costs, and remember that the 2018 HSA contribution limits have risen from just the year before. 

One Fun Fact About HSAs

Parents, spouses and even friends can contribute; so, now’s your chance to cash in on having a friend with benefits!