2024 Health Savings Account Rules

A Health Savings Account (“HSA”) is a personal savings account that can grow tax-free funds for medical expenses. They were introduced in 2004 and continue to grow in popularity with rising healthcare costs.  HSAs are a great vehicle to build wealth, though a number of people are excluded from participating; HSAs were designed to offset the expenses incurred with a high-deductible insurance plan. The Bureau of Labor Statistics estimates one third of employees in the U.S. are eligible, but they remain misunderstood and under-utilized.

For those eligible, 2024 is an exciting year. As of 2023, individuals can contribute up to $3,850 annually of pre-tax dollars, while households could contribute $7,750. In 2024, there is an increase of approximately 6-8%, which is the largest we’ve seen since the program began. In the new year, individuals can contribute $4,150 annually or $8,300 as a family. Catch-up contributions remain an option for couples over the age of 55. Those contributions remain at $1,000 per person, though a couple over 55 could collectively contribute up to $10,300 in 2024 into their HSAs.

The tax benefits of an HSA are immense.  Like a traditional IRA, you get a tax deduction for your annual contribution.  Like a Roth IRA, all the growth in the account (should you choose to invest the funds) is tax-free.  It's the best of both worlds where you get a tax deduction on the way into the account, and all the investment growth is non-taxable. The caveat to this all is that withdrawals must be used for medical expenses to get the tax free growth treatment.  It’s fair to expect higher medical costs in your aging years though, so I don’t think you should worry about this medical related withdrawal requirement.  You will likely have plenty to spend it on from prescription drugs to a knee replacement or in home medical care.