The ability to contribute money to an HSA hinges on the type of health insurance plan you have. To qualify for an HSA, you must be enrolled in a high-deductible health insurance plan. In 2024, that means having a minimum deductible of $1,600 for self-only coverage, or $3,200 for coverage at the family level.
If you're able to fund an HSA in 2024, that's an option you'll want to take advantage of. That's because HSAs are loaded with tax benefits.
HSA contributions are tax-free, and money that isn't used right away can be invested. HSA gains are tax-free, and withdrawals are as well, provided that money is used for qualified healthcare expenses.
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If you'll be participating in an HSA in 2024, it's important to make the most of your account and know exactly how it works. With that in mind, here are three rules to follow.
1. Leave your money alone if you can
Many people are used to having to spend down an FSA balance year after year. But HSAs are a very different beast.
With an HSA, it's actually best not to tap your balance year after year, but rather, leave it alone and pay for medical expenses out of pocket if you can. That way, your money can enjoy added tax-free growth. In fact, a good bet is to try to reserve the bulk, if not all, of your HSA for retirement, because that's when you might need the most money to cover healthcare expenses.
2. Make a catch-up contribution if you're 55 or older
With an IRA or 401(k) plan, catch-up contributions are allowed once you turn 50. With an HSA, you have to wait a bit longer to make a catch-up contribution, but you can do so starting at age 55. So if you're eligible for one in 2024, it pays to take advantage of that opportunity, as it will mean getting to shield more income from the IRS.
In 2024, HSA contribution limits are $4,150 for people with individual coverage and $8,300 for those with family coverage. But if you'll be 55 or older in 2024, you can put in an extra $1,000 on top of whichever limit applies to you.
3. Stop funding your account once you enroll in Medicare
Once you're enrolled in Medicare, you can take HSA withdrawals to pay for the healthcare expenses you incur. However, you can no longer make HSA contributions once you're a Medicare enrollee. And it doesn't matter if you're only signed up for Part A, which covers hospital care.
Many people sign up for Part A without Part B because Part A is generally free and can serve as secondary insurance for those who are still working and covered by a group health plan. But know that if you're going to be enrolling in any part of Medicare in 2024, you'll need to stop funding your HSA right away. If you don't, you'll face penalties on funds you contribute.
HSAs are a super useful savings tool because of the multiple tax benefits they offer. But keep these rules in mind so that you can maximize your HSA in the new year and avoid running into issues.
