HSA Contribution Limits For 2018

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The IRS has released the inflation adjusted HSA Contribution Limits For 2018. All limits have increased over the amounts announced in 2017. HSA’s are tax advantaged savings accounts and have become a very popular way for people to pay for out-of-pocket medical expenses. In fact, according to the latest research by Devenir Investments, it is predicted that HSA assets could reach more than $53 billion in 2018. But to fully unlock the benefits of HSA’s, you should understand how they can be a powerful financial planning tool.

Background on Health Savings Accounts

A Health Savings Account, or HSA, is a financial savings account established by an individual or family to pay for qualified medical expenses. HSA’s combine the benefits of qualified plans such as 401(k)s and IRAs whereas contributions are tax-deductible and grow tax-deferred.

Taxpayers receive a 100% income tax deduction on annual contributions. Unlike a 401k or IRA, withdrawals from an HSA are tax-free as long as funds are used for qualified medical expenses. There is no “use it or lose it” rule and unused funds can be rolled over each year to pay for future medical expenses.

Common Questions About Health Savings Accounts

What Type of health Plan is Required?

A High Deductible Health Plan (HDHP) which is defined as a health plan with an annual deductible that is not less than $1,350 for single coverage or $2,700 for family coverage

What Are the HSA Contribution Limits For 2018?

For calendar year 2018, the limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,450. The limits on deductions for an individual with family coverage under a high deductible health plan is $6,900. See Chart below:

HSA Contribution Limits For 2018Who Is Eligible For an HSA?

Any employee who is enrolled in a Qualified High Deductible Health Plan (QHDHP) and not covered by any other insurance program for health expenses. Medicare recipients are not eligible.

Who Owns The Account?

The employee or individual

How is The Account Funded?

Money is deposited directly into the employee’s account. Contributions can be made by the employee through lump sum contributions or pre-tax payroll deductions. An employer may also contribute to the employee’s account.

What Investment Options Are Available With An HSA?

Many HSA custodians such as banks, offer a wide range of investment options; mutual funds, money market funds or savings accounts. Invest wisely and you may see your HSA balance grow each year.

Is A Health Savings Account Portable?

Yes, the employee owns the HSA, and they can take it with them into retirement and even pass it on to their heirs.

What is The Tax Treatment of An HSA Account?

Contributions to these accounts are made on a pre-tax basis, and funds may be used tax free for qualified health care expenses.

What are Qualified Medical Expenses?

Medical expenses are the costs of diagnosis, cure, treatment or prevention of sickness or disease. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for treatment.

Can The Account Be Used For Non-Medical Expenses?

Yes. However, funds used for non-medical expenses are taxed as income and incur a 20% penalty. After 65, there is no penalty but withdrawals for non-medical expenses are still taxed as regular income.

Little Known Benefits Of Health Savings Accounts.

HSAs provide four substantial tax benefits that other retirement savings options cannot provide.

1. Your HSA contributions are not taxed
2. Contributions are tax-deductible
3. No taxes are paid on the interest earnings in an HSA.
4. You may make tax-free withdrawals for qualified medical expenses.

HSA ConsultationAt age 65, you may take penalty-free distributions from your account for any reason, but you will still have to pay income tax. If you use your account for qualified medical expenses, distributions will  be tax-free and penalty-free.  This is a huge advantage over other retirement vehicles such as 401(k) plans and IRA’s.

Studies show that Americans face higher out-of-pocket medical expenses after age 65. With an HSA, you can pay these medical expenses with tax-free dollars. Furthermore, you can use your HSA funds to pay for Medicare parts A, B, D, and Medicare HMO premiums.

Is An HSA Right For Your Company?

HSA’s are becoming one of the most popular insurance planning vehicles for employers to reduce health care premiums and provide additional compensation to employees. If you would like to know how your company can implement an HSA plan, call our office at: 914-633-1717

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