IRS Announces Second Switcheroo For 2018 Health Savings Account Contribution Limits

If you were one of the few people who stuffed or was trying to stuff your 2018 health savings account to the max before the tax overhaul ratcheted back the contribution limit, you can breathe easy. The Internal Revenue Service announced today in a revenue ruling that it will let taxpayers stick with the original $6,900 contribution limit for family coverage and not face excess contribution penalties.

In March, due to the new inflation-adjustment calculations required under the Trump tax overhaul, the IRS announced that the $6,900 limit would be reduced to $6,850. (The contribution limit for single coverage for 2018 is $3,450.)

You might think, $50, who cares? But in the world of tax-advantaged savings accounts, excess contributions come with a price. In this case, a 6% excise tax—or $3. Really. So, taxpayers were stuck with the quandary: Do I leave the extra $50 in the account, and pay the $3 (and apply that $50 towards 2019 funding), or do I deal with pulling out the excess contribution? Enough people complained that the IRS came up with a common-sense solution to go back to the $6,900 limit for 2018. Forbes’ contributor Megan Gorman wrote about the quandary here.

HSA accounts surpassed 22 million, holding about $45.2 billion in assets, according to the 2017 Year-End Devenir HSA Research Report. The average investment account holder has a $16,457 average total balance (deposit and investment account). If you are eligible for an HSA, use it. You get a triple tax break. It saves you money even if you pull funds out to pay for healthcare expenses right after making contributions. Even better: Use the investment option to save for future healthcare expenses in retirement. Check out the 10 supersavers with $200,000-plus health savings accounts at HealthEquity.

But watch out: Here’s How Health Savings Accounts Can Backfire.