Thanks to a bump in contribution limits in health savings accounts, the IRS will let you put aside more pre-tax money in 2020.
In 2019 the maximum contribution for an individual is $3,500, and for a family, it’s $7,000.
Those amounts, according to the IRS, will rise in 2020, respectively, to $3,550 and $7,100.
While the annual increases are small, contributions to an HSA can add up and earn interest, potentially making them a handy source of cash for medical expenses post-retirement.
HSAs let people set aside pre-tax money on healthcare costs. They are only available as part of high-deductible plans (HDHP) offered through an HSA trustee, typically an insurer.
The IRS defines an HDHP 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 $6,900 for self-only coverage or $13,800 for family coverage.
HSAs provide triple tax benefits. As detailed in an article by Ashlea Ebeling at Forbes.com, HSAs let participants “put money in on a tax-free basis (usually through salary deferrals); it builds up tax-free (you can invest it); and it comes out tax-free to cover out-of-pocket healthcare expenses. It’s your account; it’s up to you to use it wisely.”
In addition, Ebeling notes, the “the real juice” of having an HSA is as an additional retirement resource, a place where you can deposit funds and let them grow tax-free.
That may be easier said than done in the face of illness and the constantly rising costs of healthcare. The Mayo Clinic has a handy summary of some of the benefits and possible downsides of contributing to an HSA.