IRS Raises Health Savings Account Contribution Limits
June 13, 2008 by Be Safe Insure
Filed under Health
The IRS and Department of Treasury have elevated the ceiling for contributions to tax-deductible health savings accounts. This move will likely increase the growing popularity of HSAs as a means to reduce health insurance costs.
The IRS and Department of Treasury have elevated the ceiling for contributions to tax-deductible health savings accounts.
By increasing maximum HSA contributions for 2009, the IRS and Department of Treasury has made it more attractive for individuals and employers to consider health savings accounts (HSA) when looking at health insurance options. Money contributed to an HSA is tax-deductible, and can be used to pay qualified medical expenses tax-free.
Most of our customers keep enough of their HSA money to cover their deductible in an easily accessible savings account. As their savings grow, they’ll usually invest additional HSA funds in mutual funds or other investments with larger growth potential.
The contribution limit has been raised to $3000 for individuals and $5950 for families. This is up from 2008 limits of $2800 for individuals, and $5800 for families. Individuals who are 55 or older are also allowed to make up to an additional $1,000 a year in “catch up” contributions.
America’s Health Insurance Plans (AHIP) data shows that enrollment in high-deductible health plans eligible to be tied with health savings accounts grew to 6.1 million in 2007, growing fastest in the small group market. According to Wiley Long, president of HSA for America, “The higher contribution limits make HSAs an even better value than before, which will no doubt just accelerrate the movement towards these types of plans. Not only are HSA-qualified health insurance plans less expensive, but the tax-deduction really makes them a no-brainer, particularly for people who are paying for some or all of their own health insurance costs.”
HSAs are similar to Individual Retirement Accounts (IRAs). The account is owned by the individual HSA holder, it is portable and is not dependent on continued employment with a particular employer, and money in the account grows tax-deferred. The big advantage over an IRA is that only with an HSA can money can be withdrawn from the account tax-free to pay for qualified medical expenses.
“Most of our customers keep enough of their HSA money to cover their deductible in an easily accessible savings account. As their savings grow, they’ll usually invest additional HSA funds in mutual funds or other investments with larger growth potential”, said Long.
Individuals have until December 1 to obtain a qualifying high-deductible health plan in 2008 if they wish to take the deduction on 2008 taxes. Contributions can be made as late as April 15th.
The recent HSA contribution increases announced by the Internal Revenue Service means that policy holders can get an even larger tax deduction when maximizing their HSA contribution. This change will make these plans even more attractive as millions of people continue to transition from conventional co-pay health insurance plans, to high deductible HSA-qualified plans.
