New contribution limits for health savings accounts have been announced for 2025.
The tax advantages of a health savings account might be enormous. But the rise in tax deductible The contribution limits for 2025 are relatively modest. Nevertheless, optimizing your HSA generally is a worthwhile addition to your well-thought-out retirement plan. At the very least, it could possibly assist you to pay less in taxes annually.
For 2025, the annual HSA contribution limit for a self-insured individual under an HDHP will likely be $4,300, up from $4,150 in 2024. That’s not an enormous jump, but every little bit helps.
For a person with family coverage under an HDHP, the HSA contribution limit for 2025 is $8,550, up from $8,300 – one other small example of the Marriage penalty in our tax system.
HSA back payment contributions
If you’re age 55 or older at the top of the calendar 12 months, you possibly can contribute an extra $1,000 to your HSA.
To be eligible to contribute to an HSA, it’s essential to have an HSA-qualified high-deductible health plan and never already be enrolled in Medicare. Medicare typically starts at age 65. The IRS also updated the definition of an HDHP for 2025. Next 12 months, a health plan with an annual deductible of a minimum of $1,650 for individual coverage (up from $1,600 this 12 months) or $3,300 for family coverage (up from $3,200 in 2024) will likely be defined as an HDHP.
Why use a health savings account?
Your HSA permits you to put aside pre-tax money to pay for out-of-pocket medical expenses. As you almost certainly know, even with good medical insurance, these expenses can really add up. You may not know that HSA funds will also be used to pay Medicare Part B, Medicare Part D and Medicare Advantage premiums for those ages 65 and older.
There isn’t any required minimum distribution in an HSA account. Many people actually need to convert their HSA into one other sort of retirement account. Your funds might be invested, grow tax-free, and are available out tax-free when used as reimbursement for medical expenses. So start saving your medical receipts.
Remember that you just get a tax deduction whenever you contribute to your HSA, and also you haven’t got to pay taxes on withdrawals in the event that they’re used for approved medical care or prescriptions. You can consider it as a Roth IRA for medical care in retirement. Be sure to ask your fiduciary financial planner the way to maximize the tax planning advantages of a health savings account on your retirement plan.
Can a health savings account lower Medicare premiums?
There are two foremost reasons an HSA can assist you to spend less in your Medicare premiums. First, when you receive less taxable income from a retirement account, you are less prone to be hit with IRMAA surcharges, which might significantly increase the price of your Medicare premiums annually.
The second way an HSA can minimize the price of Medicare premiums is to make use of tax-free withdrawals out of your HSA to pay for those Medicare expenses. For example, high-income Californians could reduce their net after-tax Medicare costs by 50% in the event that they use tax-free income from an HSA to cover the price of Medicare in retirement.
