With the HSA contribution limits increasing in 2019 and on the heels of ChooseFI’s recent episode (finally) focusing on this, I thought it was time to refresh.
What’s changing with HSAs?
- In 2018, individuals can contribute up to $3,450; this is going up to $3,500 in 2019.
- In 2018, families can contribute up to $6,900; this is going up to $7,000 in 2019.
We are on my husband’s HSA plan because his employer contributes $2,000 per year into the HSA. This is amazing. His employer was just acquired by another firm; so fingers-crossed that this benefit remains in place.
Why are HSA’s a fantastic?
It’s the triple tax savings.
- Your HSA contributions are 100% tax deductible or pre-tax if made by payroll deduction.
- Your withdrawals to pay for qualified medical expenses, including dental and vision, are tax-free.
- The interest earned on your account is tax-free.
Finally, the best part, you keep it. It’s not like an FSA where you use it or lose it. Your HSA contributions can stay in your account and continue to grow tax-deferred year over year without limit. And the account stays with you if you change employers.
Using Your HSA
HSA dollars can be used to help pay your health insurance deductible and qualified medical expenses, including those not covered by the health insurance, like dental and vision care. They can also be used to pay health insurance premiums when you’re between jobs, as well as for long-term care premiums and Medicare premiums.
Non-qualified medical expenses withdrawn before the age of 65 are taxed at your income-tax rate, plus 20%. Ouch. Avoid that.
After the age of 65, you can withdraw from your HSA funds and be taxed at your income rate.
Our FI Family Plan
Continue to max out our HSA. We hope to retire prior to the age of 65. But health care is a huge concern and unknown. Not knowing the state of health care and what coverage will be available to us, this will serve as a safety net for medical costs. Otherwise, I’d like to hold onto it – and all my health care expense receipts – and withdraw tax-free, whenever I want.