How Much Can You Contribute to an HSA in 2024?

Health Savings Accounts (HSAs) offer a unique opportunity to save and pay for healthcare expenses with significant tax advantages. These accounts allow individuals to save for future medical costs and cover current healthcare needs. Understanding the specific contribution limits and rules for 2024 helps maximize the benefits of these accounts.

HSA Eligibility for Contributions

To qualify for Health Savings Account contributions, an individual must be covered under a High-Deductible Health Plan (HDHP) and generally have no other health insurance coverage that is not an HDHP. Certain permitted coverages, such as specific injury insurance or accident insurance, do not disqualify an individual from HSA eligibility. An individual must also not be enrolled in Medicare or be claimed as a dependent on someone else’s tax return.

For 2024, an HDHP is defined by specific deductible and out-of-pocket maximum thresholds. For self-only coverage, the plan must have an annual deductible of at least $1,600. The annual out-of-pocket expenses, including deductibles, co-payments, and coinsurance but not premiums, cannot exceed $8,050 for self-only coverage.

For family coverage, the HDHP must have an annual deductible of at least $3,200 in 2024. The maximum out-of-pocket expenses for family coverage are capped at $16,100. Meeting these criteria on the first day of a month establishes eligibility for that entire month.

Understanding 2024 Contribution Limits

The Internal Revenue Service (IRS) sets specific contribution limits for Health Savings Accounts each year. For 2024, individuals with self-only HDHP coverage can contribute up to $4,150 to their HSA. Those with family HDHP coverage can contribute up to $8,300.

Individuals aged 55 and over are permitted to make an additional “catch-up” contribution of $1,000 per year. This catch-up contribution is an increase to the annual limit and is allowed for each eligible individual; for example, if both spouses in a family coverage plan are 55 or older, they can each contribute an additional $1,000 to their respective HSAs. This provision is detailed under Internal Revenue Code Section 223.

Contribution limits are generally prorated if an individual is not HSA-eligible for the entire year. This means the total annual limit is divided by 12, and the individual can contribute that monthly amount for each month they were eligible. Eligibility is determined by coverage status on the first day of each month.

A special provision known as the “last-month rule” allows individuals who become eligible on the first day of the last month of their tax year (December 1st for most taxpayers) to contribute the full annual limit, including any applicable catch-up contributions. Utilizing this rule requires maintaining HSA eligibility through a “testing period” which extends until December 31st of the following year. Failure to remain eligible during this period can result in previously untaxed contributions becoming taxable income, along with a potential 10% penalty.

Contributions made by an employer on behalf of an employee also count towards the annual contribution limits. These employer contributions are typically made on a pre-tax basis, further enhancing the tax benefits of the HSA. If both spouses have separate HSAs under a family HDHP, their combined contributions, including any employer contributions and catch-up contributions, cannot exceed the family contribution limit.

Managing Excess Contributions

Contributing more than the allowed limit to an HSA can lead to specific tax consequences. Such amounts are considered excess contributions and are subject to a 6% excise tax. This tax is imposed on the excess amount for each year it remains in the account.

To avoid this penalty, excess contributions and any earnings attributable to them must be withdrawn from the HSA. This corrective distribution must occur by the tax filing deadline, including any extensions, for the year the excess contribution was made. Promptly identifying and rectifying an over-contribution helps mitigate potential penalties.

Making Your Contributions

Once eligibility and contribution limits are understood, the process of funding an HSA involves several practical methods. Many individuals contribute to their HSA through payroll deductions offered by their employer. This method is convenient and typically allows contributions to be made on a pre-tax basis, reducing current taxable income.

Individuals can also make direct contributions to their HSA custodian, such as a bank, credit union, or investment firm. These direct contributions can be made via electronic transfer, check, or other methods provided by the custodian. While not pre-tax through payroll, they are generally tax-deductible when filing income taxes, provided the individual is eligible.

Funds can also be transferred or rolled over from other health savings accounts. A one-time direct transfer from an Individual Retirement Arrangement (IRA) to an HSA is also permitted. This one-time transfer allows individuals to move funds from a traditional IRA or Roth IRA into an HSA, subject to certain rules and limits.

The deadline for making contributions to an HSA for a given tax year is typically the tax filing deadline for that year, which is generally April 15th of the following calendar year. This means contributions for the 2024 tax year can be made up until April 15, 2025.