The Internal Revenue Service recently released 2023 contribution limits for health savings accounts (HSAs), and they show a significant jump up compared to 2022 limits.
In Revenue Procedure 2022-24, the IRS announced that for calendar year 2023, the annual inflation-adjusted limit on HSA contributions for self-only coverage will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up $450 from $7,300 in 2022. The adjustments represent a 5.5% percent increase over 2022 contribution limits, which is almost a five-fold increase compared to the 1.4% increase between 2021 and 2022, which amounted to $50 for individuals and $100 for family coverage.
Americans 55 or older at the end of 2023 will be able to put in an extra $1,000 in “catch up” contributions if desired, which is the same amount allowed in 2022.
HSA participants also must be covered under a high deductible health plan to be eligible for an HSA. For 2023, the health plan must have a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage. Those minimums were $1,400 and $2,800 for 2022.
The out-of-pocket medical expenses that you’re required to pay under the health plan have limits, too. For 2023, the out-of-pocket limit for self-only coverage will go from $7,050 to $7,500, and from $14,100 to $15,000 for family coverage.
An HSA allows individuals to set aside pre-tax money to pay for out-of-pocket medical expenses such as copayments, deductibles, and other qualified expenses. These funds remain in the account and are not “use it or lose it” like other types of flexible savings accounts.
HSAs offer one of the best tax breaks in the entire tax code. They are uniquely triple-tax-advantaged, as contributions to the HSA reduce taxable income; the earnings grow tax-free; and qualified withdrawals (used to pay qualified health care expenses) are tax-free.
According to the 2021 Year-End Devenir HSA Research Report, released in late March, health savings accounts grew to $98.0 billion in assets held in over 32 million accounts, a year-over-year increase of 19% for assets and 8% for HSAs as of the end of 2021. Devenir projects that the HSA market will reach 38 million accounts by the end of 2024, holding $150 billion in assets.
