Get ready to really stuff your health savings account. The Internal Revenue Service just announced the 2018 inflation-adjusted limits for health savings accounts, and they’re up. For 2018, you can contribute up to $3,450 (up from $3,400 in 2017) for single coverage, or up to $6,900 (up from $6,750 in 2017) for family coverage.
Meanwhile, the scary maximum out-of-pocket figures are up too: $6,650 for single coverage (up from $6,550 in 2017), $13,300 for family coverage (up from $13,100 in 2017).
Those bigger numbers might be the real ones to focus on for 2018 because one of the key provisions of Trumpcare would be to expand health savings accounts, essentially doubling contributions limits, pegging them to out-of-pocket maximums. The House passed Trumpcare—its plan to repeal and replace Obamacare–today by a 217-213 margin, and included big enhancements to HSAs. Needless to say, nothing’s certain, except a fight in the Senate, but it’s instructive to see what the future of HSAs could look like. (For a rundown of the tax cuts in the latest bill, see Trumpcare Keeps Obamacare Tax On The Rich Until 2023.)
In addition to doubling HSA contribution limits, the Trumpcare bill also helps HSAs by cutting the penalty for non-medical-related withdrawals before age 65 from 20% (under Obamacare) back to 10%. And it reestablishes the right to pay for over-the counter-medications without a prescription with your health savings account dollars.
You can only open an HSA if you have a high deductible health insurance plan. What’s to like about them? They’re triple tax advantaged. You get the tax break going in (the money you contribute to the account, usually through payroll deductions, goes in pre-tax; the money you contribute grows tax-free; and if you use it for out-of-pocket healthcare expenses, including deductibles, distributions are tax free too. (A 20% penalty and income taxes apply if you take money out before you’re 65 and spend it on something other than eligible healthcare expenses).
More plusses: A health savings account is not a use-it-or-lose-it account like a healthcare flexible spending account; rather, it’s yours to keep, even if you change employers. And it’s a great way to build up tax-free savings for retirement healthcare needs: COBRA, Medicare and long-term care premiums are all eligible expenses.
If you don’t have an HSA already, it’s a safe bet that one will be in your future. How much you’ll be able to save depends on the Senate. President Donald Trump has called for expanding them.
For how to build your HSA balance through investing, see The $150,000-Plus Health Savings Account.
See The Tax Day Health Savings Account Trick for how to make last minute HSA contributions to lower your adjusted gross income and get other tax breaks.
Here’s a link to the IRS Revenue Ruling.