HSA Contribution Limits In 2023: Everything You Need To Know

HSA accounts can be a lifesaver for middle-income families. Healthcare costs are ridiculously high in the USA, so it’s never too late to think about an HSA account.

For those unfamiliar with Health Savings Accounts, they are tax-advantaged accounts that allow you to save money for healthcare costs. With 2023 just around the corner, it is important to understand the HSA contribution limits that may be in effect.

In this article, we will discuss the contribution limits and other details to help you maximize the benefit of your HSA. Read on to learn more about HSA contribution limits in 2023 and how you can best utilize them for your benefit.

What Is HSA?

The Health Savings Account (HSA) is a type of tax-advantaged savings account that helps individuals and families save money for paying medical expenses. The primary benefit of an HSA is that it provides a way for you to save money for medical expenses on a tax-advantaged basis.

Contributions to an HSA are made with pre-tax dollars. Any earnings on the account are tax-free. Funds in an HSA can be used to pay for eligible medical expenses, including doctor visits, prescriptions, and even dental and vision care. There are certain criteria to be eligible to open an HSA. You must have a high-deductible health plan (HDHP).

Also, you must not enroll in Medicare or any other type of health insurance. An HDHP is a health insurance plan with a lower premium and higher deductibles than a traditional plan.

You can use the funds for a variety of medical expenses, but not for any purpose other than health care costs. HSAs are a great way to save money on healthcare expenses while also receiving tax benefits.

HSA Contribution Limits In 2023

HSA is a great option for bearing healthcare costs in old age. However, there are some limitations. You cannot put as much money as you want into the account. But don’t let this disappoint you because HSA has so many features that make up for the contribution limitations. Here are contribution limits along with some fantastic features of the HSA account:

1. Tax-Free Contributions

The great thing about the HSA is that you can make tax-free contributions. This means you can save money for medical expenses without having to pay taxes on them. The annual contribution limit for 2023 is $3,850 for individuals and $7,750 for families.

You can add money to your HSA by using a pretax payroll deduction. However, California and New Jersey tax laws don’t offer such facilities.

2. Tax-Free Interest

The interest earned on the account is tax-free. This means the money you put into the account stays whole; you get exactly what you deposited, which is great. This is different from normal savings accounts in banks or other financial institutes, where you’ll be taxed on your savings.

California and New Jersey consider the interests taxable, and in Tennessee and New Hampshire, the earnings are considered taxable, but contributions are not.

3. Catch Up Contributions

If you are age 55 or older, you can make catch-up contributions to your HSA. This means that you can contribute an additional $1,000 per year to your HSA. It is standard across both single and family coverage.

HSA Rules In 2023

Knowing the rules and regulations governing HSAs is essential if you want to make the most of the potential tax benefits.

There are some fines and taxes applicable in cases of excess contributions and unauthorized expenditures. So knowing the rules is very important. Here are the HSA rules for 2023:

1. Excess Contributions

You can contribute over the limit to your HSA account, but you will have to pay a 6% tax on the extra amount you deposit. Also, your employer’s contribution influences the total contribution limit. This rule is very important to remember to avoid unnecessary taxes.

2. HSA Withdrawals

The funds in your HSA can be used to cover qualified medical expenses such as doctor visits, prescriptions, and medical equipment. You can also use HSA funds for some preventive care services and other non-medical expenses.

If you withdraw funds from your HSA for non-qualified expenses, the withdrawal is subject to income tax and a 20% penalty. In 2023 if you are age 65 or older, you can make qualified distributions from your HSA without being subject to any penalty.

3. HSA Investments

HSAs are not just for saving money; they also provide an opportunity to invest. Many HSAs allow you to invest in mutual funds and other investments. Once you have a minimum HSA balance, you can invest contributions in stocks and mutual funds.

HSA Eligibility

HSA is available for families and individuals with a High-Deductible Health Plan (HDHP). An HDHP is a type of health insurance plan with low monthly premiums and a high annual deductible.

In 2023, the HDHP plant must have a minimum annual deductible of $1,500 for individuals and $3,000 for families. Also, it has to have a maximum annual out-of-pocket expense of $7,500 for individuals and $15,000 for families. Some additional requirements are as follows:

• Not be covered by any other health insurance plan that is not an HDHP
• Not be enrolled in Medicare

Some Key Reminders About HSA Contribution

• The family contribution limit applies to both spouses in the case of married couples. However, the family has to have an HS-eligible family coverage plan. If it all seems complicated to you, just know that married couples can contribute $3850 each to the HSA.
• If spouses are both 55 years old or more, both of them have to have separate HSA accounts. In this case, both spouses can contribute an extra $1000 to their HSA.
• You might wonder what If only one of the spouses is 55 years old. In that case, the spouse who is older has to create a different account for the $1,000 catch-up contribution.
• If the contribution limit is exceeded, you will be fined an annual 6% penalty tax on the exceeded amount.
• Withdrawing the money from the HSA before the deadline for the tax can help avoid the fine.

HSA vs FSA

FSA stands for flexible spending account. Healthcare FSAs are another common way people use tax-advantaged dollars to save for qualified medical expenses. With an FSA, you can contribute up to $2,850.

However, funds contributed to an FSA are subject to the “use it or lose it” rule—meaning you must use all contributions within the year or forfeit whatever’s left over, with some exceptions. When deciding between an HSA and FSA, it’s important to consider your particular needs and budget.

The HSA’s ability to invest and offer tax-free growth may make it more attractive in the long run, while the FSA “use it or lose it” rule may make it a better fit for immediate medical expenses. Ultimately, the best choice for you will depend on your specific financial situation.

Conclusion

The HSA contribution limits are an important consideration to maximize the benefits of a Health Savings Account. And in 2023, some changes took place which makes it even more crucial to know the ins and outs of HSA. Knowing the limits, the types of eligible expenses, and how to maximize contributions can help you make the most of your healthcare dollars.

Now we know how difficult it can be to keep track of so much data. And that is why we recommend you use HSA Buttler. A tool that can help you keep track and record all of your health expenses on the cloud. Sign up today.