Health Savings Accounts (HSAs) are a great way to get valuable taxes in exchange for setting up money for future health expenses. Unfortunately, they are only available to those who have specific types of health insurance plans with high deductibles. But for those who qualify, the tax benefits are so lucrative that many people use HSAs as long-term investing cars with the intention of paying for health care expenses upon retirement.
At present, the IRS does not expect any significant changes to the provisions for health savings accounts. As a result, only small adjustment-related adjustments are likely to apply to HSAs in 2021. Below, we will take a closer look at these new figures and whether more dramatic changes may occur in the future.
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2021’s HSA changes
Most of the provisions for health savings accounts are indexed on inflation. Therefore, from year to year you can expect incremental increases in most of the given dollar figures that apply to HSAs. In 2021, adjustments include the following:
- Maximum HSA contributions will increase somewhat. Those who only cover themselves under a health insurance qualification plan can push up to 50,000 limits by 50s by 2021. The corresponding figure for those who have coverage for the whole family will be $ 7,200, up from $ 100 by 2020. If you are 55 or older, you will be able to make an additional contribution of $ 1000 as a by-catch contribution.
- To be eligible, your health insurance plan must meet certain requirements such as a highly deductible health plan. However, it can not force you to pay more than specified maximum amounts for pocket. By 2021, the amount for self-only policies will increase from $ 100 to $ 7,000. Family Policy has a $ 14,000 cap for out-of-pocket spending, up $ 200 from 2020 levels.
Basically, there should be adjustments made to the minimum deductible you need to pay before you are eligible for health plan coverage. However, the inflation factor was too small to accommodate changes. Therefore, the 2020 minimums of $ 1,400 for self-employed policies and $ 2,800 for family policies will also apply in 2021.
Why you want an HSA
It is difficult to find a tax return more attractive than the health savings account. You get a triple benefit from an HSA:
- You can deduct your HSA contribution from your current taxes.
- You can invest your HSA money and not pay taxes on income or capital gains, as long as the money stays in the account.
- As long as you withdraw HSA money to qualify for health care expenses, you do not have to pay taxes on withdrawals – whether it is your original contribution or the income generated along the way.
Only if you use money for purposes other than health care will you have potential taxes and penalties. That is a valuable asset to have on your side.
Moreover, HSAs are not designed like other types of accounts to help people save on healthcare costs. Flexible savings accounts are even more popular than HSAs because many employers make them available, regardless of the type of health insurance plan you use. With FSAs, however, you have to use all the contributed money every year, otherwise you lose it.
There are no forgiveness of HSAs. You can carry that money as far into the future as you want – maximize your potential growth.
See if you can use an HSA
Not all employers offer health plans that qualify for use with HSAs. However, if you do not, it is worth asking if your employer would consider an HSA option. Costs can be lower for companies, such as individual workers, so it’s not always as difficult to sell as you might think.
HSAs can be great tools to save on your health expenses both now and in the future. Talk to your employer to see if you qualify, and if so, talk to your financial institution about what is involved in setting one up. The tax benefits alone are worth the time and effort.
