Since their creation in 2003, health savings accounts (HSAs) have provided an added financial boost to help those saving for health care expenses and retirement. You can contribute money to these accounts each year, tax-free up to annual limits. From there, you can use those funds for qualified medical expenses or withdraw them in retirement as if you had contributed to a traditional IRA.
The 2022 HSA contribution limits have been announced by the IRS. They will change from the previous year, allowing you to contribute more than ever before — $3,650 for individuals and $7,300 for families, with a $1,000 HSA catch-up contribution available to account holders age 55 and older. These new limits will take effect on January 1, 2022, and will dictate how much you are able to contribute to your health savings account for the year.
It's important to understand what these changes entail, why they are happening and what you should consider when using an HSA to save for health care and retirement expenses.
What Is a Health Savings Account?
Health savings accounts are a type of tax-advantaged savings account that allows individuals and families to set aside money pretax for qualifying health care expenses.
You can contribute money up to certain limits each year and then withdraw the money tax-free to pay for qualifying health care expenses. HSAs can be used by individuals or families who have health insurance through high deductible health plans (HDHPs) that meet certain requirements.
These health insurance plans require enrollees to pay for all out-of-pocket medical expenses until they meet their deductible. The insured bears partial responsibility for additional expenses through a coinsurance rate until reaching the annual out-of-pocket maximum.
If you have an HDHP and access to an HSA, you can use your account funds to pay for qualifying medical expenses not fully covered under your insurance. This may include costs for doctor visits, drug prescriptions or hospital visits.
You can typically set up and administer an HSA through a bank, credit union or insurance company tied to your employer. Alternatively, you can go directly through an HSA provider if you're self-employed.
What Are the Requirements to Contribute to HSAs?
In order to contribute to an HSA, individuals and families must meet the following requirements:
- An individual or their family must have HDHP coverage to contribute to an HSA. This HDHP must meet a minimum deductible limit set by the IRS. For calendar year 2022, the IRS set the qualifying minimum deductible at $1,400 for individuals and $2,800 for families — the same as calendar year 2021.
- The HSA enrollee cannot be 65 or older and eligible for Medicare.
- The HSA enrollee can't be claimed as a dependent on another's federal income tax return.
- The HSA enrollee can't also receive coverage from another health insurance plan, such as from a spouse's plan.
What Are the 2022 HSA Contribution Limits?
To account for inflation, the IRS increased the 2022 HSA contribution limits for both self-only and family HDHP plans.
2021 HSA contribution limits:
- Self-only: $3,600
- Family: $7,200
2022 HSA contribution limits:
- Self-only: $3,650 (up $50 from 2021)
- Family: $7,300 (up $100 from 2021)
No changes have been made to the $1,000 HSA catch-up contribution amount for account holders age 55 or older.
How Can Taking Advantage of the 2022 HSA Contribution Limits Help You?
If you contribute funds to your HSA, you may be able to earn interest and even invest in assets like stock and bonds, depending on your account provider. By leaving the money in the account to grow over time until retirement, you can treat the funds you withdraw from the account much like you would treat money from an IRA. In other words, an HSA allows you to double down on how much you contribute toward retirement compared with contributing to an IRA alone.
If you can manage to contribute and use your HSA to pay for your own medical expenses, these additional tax-advantaged savings can help your bottom line as you prepare for retirement.