The IRS recently released the 2022 contribution limits for health savings accounts (HSAs), as well as the 2022 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs).
What are those numbers?
Annual Contribution Limit
For calendar year 2022, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,650. For calendar year 2022, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,300.
Those over 55 can add $1,000 to the contribution as well.
“The biggest thing workers need to know about the 2022 IRS numbers is that they can increase contributions if they want to max out their accounts next year,” said Kelley Long, a self-described financial bliss coach.
High Deductible Health Plan
For calendar year 2022, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,050 for self-only coverage or $14,100 for family coverage.
What else do you need to know about HSAs?
Fund Your HSA
The most important things for individuals to know are the advantages of funding their HSAs, said Matthew Clarkin, the co-founder and president of Access Point HAS. “The HSA provides them with the flexibility to pay qualified medical expenses both today and in retirement, including Medicare premiums, deductibles and other copayments, on triple tax-free basis.”
Others are also keen to highlight the tax advantages of HSAs. Your HSA contributions are tax-deductible, you can withdraw and spend the money tax-free, and growth of investments in the account is tax-free too. “Your contribution multiplies, if not compounds based on what you earn on it,” said James Brewer, the CEO of Envision Wealth Planning.
Not Eligible for the Entire Year
Even if you weren’t HSA-eligible for the entirety of 2021, a full year's maximum contribution is allowed if you are HSA-eligible as of Dec. 1, 2021, said Clarkin. “There is a requirement however that the individual remain HSA-eligible for the entirety of 2022,” he said.
It’s Not a Flexible Spending Account
Many people still need to know that a flexible spending account is not a health savings account, said Brewer. “The flexible spending account is simply dollar-for-dollar and forces you to guess how much money you will spend during the next calendar year,” he said. “By contrast, the flexible health savings account allows you to save for unknown health expenses in the future without fear of the money going to waste.”
IRA for Healthcare Expenses
While it can be used for pre-retirement health expenses, an HSA can be considered a healthcare-in-retirement IRA, said Brewer. “When one considers it that way then you would be investing the money for the long term as opposed to the short term,” he said. “Effectively you could invest in the same type of investments that your 401(k) and IRA allow. Then you can view the money as representing more than the current contribution limit,” he said.
Do You Have the HDHP Option?
Be sure to confirm that your plan is HSA-eligible even if you have a high-deductible health care plan, said Long. “It’s more than just the deductible that determines HSA-compatibility so if you’re in doubt about whether you can contribute to an HSA due to your plan having a deductible above the limits, it’s best to call your benefits department or provider to confirm to avoid potential IRS penalties.”
If you do have the ability to choose your healthcare plan, then you should take into consideration HSA savings. “Also, many plans for convenience of payroll deduction offer a pre-selected HSA vendor,” said Brewer. “If that convenience does not matter to you, you can look for outside providers that may provide more flexible investment menus and other features.”
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