An HSA (Health Savings Account) offers you a triple tax-advantaged way to save for your medical expenses.
- Your contributions are tax-deductible.
- Earnings in your account enjoy tax-free compounding.
- Withdrawals for eligible medical expenses are tax-free.
In many ways, it works similarly to a retirement plan. You make contributions to your account with pre-tax income and receive a tax deduction for the tax year, like a traditional IRA. The money in your HSA can either get put in a high-interest savings account or invested into traditional assets, and you don’t pay any taxes on any of your earnings – 100% of the profits can get reinvested with tax-free compounding.
And like a Roth IRA, you also don’t pay any taxes on withdrawals from your account, but only if the funds are used to pay for eligible medical expenses. In retirement, you can start taking withdrawals from your account starting at the age of 65 for any reason, and the amount withdrawn will be taxed as ordinary income.
Also read: What is an HSA? How It Works, Pros & Cons
Who’s eligible to contribute to an HSA?
In order to be able to contribute to an HSA, you must be enrolled in a high-deduction health plan (HDHP) that qualifies as an HSA-eligible health plan.
For 2022, an HDHP is defined by the IRS as:
- Having a deductible of at least $1,400 for individuals and $2,800 for families.
- Out-of-pocket expenses do not exceed $7,050 for individuals and $14,100 for families.
For 2023, an HDHP is defined by the IRS as:
- Having a deductible of at least $1,500 for individuals and $3,000 for families.
- Out-of-pocket expenses do not exceed $7,500 for individuals and $15,000 for families.
Note: Make sure to check that your plan is specifically HSA-eligible, as not all high-deductible plans are HSA-eligible by default.
In addition to being enrolled in an HDHP, you must also be a worker (employed or self-employed), have no other health coverage, not be enrolled in Medicare, and not be reported as a dependent on anyone else’s tax return.
HSA contribution limits
Contribution limits are set by the IRS each year, adjusted for inflation and other changes. You, your employer, family members, or anyone else can make contributions into your HSA. The total contributions into the account must not exceed the annual HSA contribution limit.
2022 contribution limit
For the 2022 tax year, you can contribute up to $3,650 if you’re under an individual plan or up to $7,300 for family plans. If you’re 55 years of age or older, you get an additional $1,000 in catch-up contributions added to your contribution limit.
2023 contribution limit
For the 2023 tax year, you can contribute up to $3,850 if you’re under an individual plan or up to $7,750 for family plans. If you’re 55 years of age or older, you get an additional $1,000 in catch-up contributions added to your contribution limit.
HSA contribution deadlines
You can make contributions up until the federal tax filing deadline each year, which is usually April 15th unless the date falls on a weekend or holiday.
2022 HSA contribution deadline
For the 2022 tax year, you have until April 18th, 2023 to make your final contribution, since April 15th falls on a Saturday and the following Monday is a holiday.
2023 HSA contribution deadline
For the 2023 tax year, you have until April 15th, 2024 to make your final contribution.
Can the HSA contribution deadline be extended?
With a personal tax return, you can normally file for an extension, which would give you 6 more months to file your taxes. Unfortunately, the HSA contribution deadline cannot be extended, even if you receive an extension on your personal tax return.
Who can make contributions to my HSA?
You, or anyone else you know, can make contributions to your own HSA. Your employer can also choose to contribute to your HSA. Unlike a 401k, there is no matching contribution requirement. If your employer chooses to contribute to employee HSAs, there is no requirement that employees must also make contributions.
All contributions to your HSA are counted towards your annual contribution limit, regardless of who makes the contribution.
How much of a tax-deduction can I get from an HSA?
All contributions to your account are made on a pre-tax basis and are deducted from your taxable income. This means that you can get a tax-deduction up to the annual HSA contribution limit, which is $3,650 for 2022 and $3,850 for 2023 if you’re under 55 years of age, and up to $4,650 for 2022 and $4,850 for 2023 if you’re 55 years of age or older.