The IRS recently published an inflation adjustment increase to the maximum HSA contribution for 2018, and there will be in increase over the maximum HSA contribution for 2017. More specifically, both the individual and family contribution maximums will increase from 2017 to 2018, which is great news for savers.
If you’ve been following along, you know that I have been a big fan of health savings accounts (HSA’s) over the last few years and fully max them out. Why? HSA’s are like IRA’s on steroids (tax-free steroids at that). They offer users pre-tax contributions, tax-free investment gains, and tax-free distributions to pay for eligible health care expenses.
With HSA’s, you own the account. It goes with you and can be used regardless of future employment status or health plan. This is not the case with FSA’s, which are tied to your employer.
All benefits aside, your ability to annually contribute to an HSA is determined by whether or not you are enrolled in a high deductible health plan (HDHP), as they are defined by the IRS.
For 2018, HDHP’s will be defined as plans that have:
- A minimum annual deductible of at least $1,350 for individual coverage or $2,700 for family coverage; and
- Annual out-of-pocket expense maximums (e.g., deductibles, co-payments, and other amounts, but not premiums) up to $6,650 for individual coverage or $13,300 for family coverage.
Take this in to consideration when open enrollment comes around this fall.
2018 Maximum HSA Contribution Limits
- Individual Plan: $3,450 (+$50 over prior year)
- Family Plan: $6,850 (+$100 over prior year)
Note: The maximum HSA contribution includes both employer + employee contributions.
HSA Catch-Up Contribution Amount
Similar to IRA’s and 401K’s, there are catch up contributions for those age 55 and over. The HSA catch-up contribution is $1,000 for both individual and family plans for 2018.
Can you Contribute to an HSA Outside of an Employer Payroll Deduction?
Yes, you can contribute to an HSA outside of an employer. And the same tax deductible benefits apply (you just won’t be able to fully realize them until you do your taxes for the year.
When is the HSA Contribution Deadline?
The HSA contribution deadline is the same date as the tax deadline. This means you have roughly an additional 3.5 months after the end of the calendar year to retroactively make HSA contributions for that year.
The Case for Maxing Out your HSA Contribution
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.
Some employers will allow you to make larger contributions towards the end of the year, but you’ll have to check with your HR department.
Here’s why you should consider contributing as much as you can to an HSA. If you are young and healthy, health care costs will eventually catch up with you.
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?
When you turn 65, you can use HSA funds on not just medical expenses, but anything, without penalty (non-medical expenses are taxed like Traditional IRA distributions) – so there’s little downside to contributing too much.
And remember, the entire time, you can grow your contributions through investments, just like any other retirement account.
Your employer may also make tax-free contributions to your HSA, if you are enrolled in their HDHP offering.
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).
Should you Front-Load your HSA Contributions?
The decision of whether or not to front-load your HSA contributions in the beginning of the year has some nuances. If you have upcoming expenses and plan to keep your HDHP throughout the year, it could pay off. Otherwise, it can create a bit of a mess to clean up in order to avoid taxes and penalty.
- Will you be maxing out your HSA this year or next year?
- Have you moved away from HDHP/HSA’s now that ACA changes have taken effect?