The Internal Revenue Service announced new, higher contribution limits for health savings accounts for 2019 today, the same day a group of retirement experts debated the role of HSAs at the Employee Benefit Research Institute’s 83rd policy forum.
“It’s a sad commentary that you can write a 200-page book about how these things work,” said Todd Berkley, managing director at BenefitWallet, brandishing his tome, The HSA Owner’s Manual, and recommending it as a sleep aid. Most people are dragged into high deductible health insurance plans against their will, and they’re focused on whether they’re going to lose their doctor, not figuring out how these plans work, including the health savings accounts that usually come with them. That’s a mistake. “It’s a very powerful—if complicated—account,” Berkley says. You save money whether you use the account for current out-of-pocket healthcare expenses, or as a supplemental retirement savings vehicle.
HSAs, which have been around for 15 years, surpassed 22 million, holding about $45.2 billion in assets, according to the 2017 Year-End Devenir HSA Research Report. You put money in on a taxfree basis (usually through salary deferrals), it builds up tax free (you can invest it), and it comes out taxfree to cover out-of-pocket healthcare expenses.
For 2019, you can contribute $3,500 for individual coverage, up from $3,450 for 2018, or $7,000 for family coverage, up from $6,900 for 2018. Here’s a link to the IRS revenue procedure with these official numbers. (In a switcheroo, the IRS changed the 2018 contribution limit from $6,900 to $6,850 and then back to $6,900.) If you’re 55-plus, you can sock away an additional $1,000 a year.
Doug Fisher, director of retirement policy at the American Retirement Association, says he saves to the max in his HSA and doesn’t take distributions because he’s investing the money to use as a retirement healthcare kitty. Once you’re 65, you can take out taxfree distributions to cover Medicare premiums. That’s a savvy strategy for high income earners. But most HSA owners need the money for current healthcare expenses, Fisher says, and the big mistake one out of five HSA owners make is not contributing at all.
At a minimum, you should put away enough to cover your deductible. If you lowballed your annual contribution, know you can top it off up until the tax year filing deadline. Say you get a big unexpected doctor’s bill. You can put money into your HSA, take it right out, and the government just paid 25% of the bill, Berkley marvels. (The higher your tax bracket, the bigger your savings).
“People don’t take full advantage of HSAs,” says Paul Fronstin, director of health research at EBRI. His research shows that the average individual contribution is just $1,300. Yet folks who’ve had the accounts for 10 years are putting in an average of $3,200. That’s good news. “Over time, people see the value of putting in higher contributions,” he says.
Take the challenge: Sock away the $3,500 or $7,000 max in your HSA for 2019, plus another $1,000 if you’re 55-plus.
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