Why I will be Maxing out my HSA in 2014
Update: the 2015 maximum HSA contribution has been announced and there is an increase over 2014.
Along with the other tax advantaged accounts, the IRS recently announced increases in limits to one of my favorite savings vehicles – HSA’s.
Good news – there was a slight increase in maximum contribution to HSA’s, despite the maximum 401K contribution (with its higher max) and maximum IRA contribution staying the same (more on that in a bit).
Back to my love for HSA’s. HSA’s are like a turbo-charged IRA, offering pre-tax contributions, growth through investment, and tax-free distributions.
Unlike with FSA’s, contributions roll over from year-to-year, and you own the account, meaning it goes with you regardless of future employer or health plan.
There is a catch. You must be enrolled in an HDHP in order to be eligible to contribute to one. HDHP’s are classified as plans that have:
- An annual deductible of at least $1,250 for self-only coverage or $2,500 for family coverage (same as last year); and
- Annual out-of-pocket expense maximums (e.g., deductibles, co-payments, and other amounts, but not premiums) up to $6,350 for self-only coverage or $12,700 for family coverage (up from $6,250 and $12,500 last year).
Here are the 2014 maximums on HSA contributions…
2014 Maximum HSA Contribution Limits
The 2014 HSA contribution maximum contributions go up slightly from the 2013 maximum HSA contribution levels:
- Single Plan: $3,300 (up from $3,250)
- Family Plan: $6,550 (up from $6,450)
As with 401K’s there is a catch up contribution for those age 55 and over. The 2013 HSA catch-up contribution is $1,000 for both single and family plans.
In most cases, you’ll have to decide your HSA contributions for the following year during your open enrollment. Your employer will usually let you contribute a specified amount evenly across all pay periods.
Why I will Max out my HSA Contribution
I really only saw the light with HSA’s in 2012, but now that I have, 2014 will be the third straight year I will max out my HSA contribution.
Here’s why – yes, I am relatively young and healthy now, but, sooner or later, health care costs will catch up with me.
HSA’s allow you to build a significant cushion to protect yourself from future costs. Why pay for health care costs with after-tax dollars if you could pay with pre-tax dollars?
Afraid of hoarding too much? When you turn 65, you can use HSA funds on not just medical expenses, but anything, without penalty.
And remember, the entire time, you can grow your contributions through investments, just like any other retirement account.
At the same time, I’m making a fairly respectable income at the moment and contributing to an HSA cuts my present tax bill.
To top it off, my employer contributes $2,000 (tax free) to my HSA for being enrolled in its HDHP. This has allowed me to achieve the rare feat of making money on health insurance!
If all of that sounds appealing and you’re interested in more on HSA’s, check out the previous links in this article or IRS publication 969. Also, check out my list of the best HSA accounts if you’ve left an employer and want to move your current HSA to a new one (fees do vary quite a bit).
- Will you be maxing out your HSA this year or in 2014?
- What do you like or dislike about HSA’s?