IRS raises 2020 HSA contribution limits


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Savers who take advantage of health savings accounts will be able to sock away a little more next year.

The IRS on Thursday raised the contribution limits health savings accounts, or HSAs, for the calendar year 2020:

  • For people with self-only coverage under a high-deductible plan, the limit is $3,550.
  • For those with family coverage under a high-deductible plan, the limit is $7,100.

These are increases of $50 and $100, respectively, from 2019 contribution limits. The catch-up contribution for people age 55 and older remain at $1,000.

High-deductible health plan adjusted for inflation in 2020

In 2020, a high-deductible health plan is a health plan that’s not less than $1,400 for self-only coverage or $2,800 for your family coverage. These are increases of $50 and $100, respectively, from 2019.

The annual out-of-pocket expenses for a high-deductible health plan next year can’t exceed $6,900 for self-only coverage or $13,800 for family coverage. Out-of-pocket expenses can include co-payments, deductible and other amounts. Premiums aren’t included. These are increases of $150 and $300, respectively, from 2019.

What is an HSA?

A health savings account allows people who meet the eligibility requirements to use pretax money for their health expenses. HSAs are for people with high-deductible insurance plans.

An HSA is set up through a qualified HSA trustee. This trustee can be a bank or an insurance company. It also can be through an existing IRA or Archer MSA trustee.

Eligibility requirements

To qualify for an HSA, you must meet the following requirements, according to IRS Publication 969:

  • You need to be covered under a high deductible health plan (HDHP). An HDHP has a higher annual deductible than typical health plans and has a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses for covered expenses.
  • You need to have no other health coverage. But there are exceptions. An employee can contribute to an HSA while being covered under an HDHP and one or more of the following arrangements:
    • Limited-purpose health Flexible Spending Arrangement (FSA) or Health Reimbursement Arrangement (HRA).
    • Suspended HRA.
    • Post-deductible health FSA or HRA.
    • Retirement HRA.
  • You can’t be enrolled in Medicare.
  • You can’t be claimed on someone else’s tax return.

Benefits of an HSA

There are several reasons you may want to consider an HSA, if you’re eligible.

  • You can claim a tax deduction for contributions that you or someone else, not including your employer, makes to your HSA. This is even the case if you don’t itemize Schedule A on Form 1040, according to IRS Publication 969.
  • If your employer contributes to your HSA, these may be excluded from your gross income.
  • Contributions to an HSA stay in the account until you use the funds.
  • Any interest or increase that the assets experience is earned on a tax-free basis.
  • Distributions may be tax-free for paying for qualified medical expenses.
  • HSAs are portable, which means if you change jobs or leave the work force the account stays with you.