The tax rules surrounding health savings accounts are indexed with inflation rates.
People who have health savings accounts are getting a big opportunity next year — a shot to contribute much more to these tax-advantaged savings accounts.
Health savings accounts are used to offset the pain of high-deductible health-care plans. With high-deductible plans, customers pay a lower premium, but they pay more for their medical services. With HSAs, pretax dollars are used to pay out-of-pocket health-care expenses. Money deposited in HSAs can roll over from year to year, and may be invested in a wide range of mutual funds. Many people, however, do not have access to these accounts through their health-insurance plan.
These accounts get three types of tax breaks: there’s a tax deduction for money that goes in, tax-free growth and then tax-free distributions for qualified medical expenses on the way out. That even counts for medical expenses they incurred years ago, so long as they have the receipts. “Inflation is hitting us all,” but higher HSA contribution limits could let people “stretch their health-care dollars a little,” Spiegel said. “The upshot here is that you are able to save more than you otherwise could.”How HSAs differ from FSAs Despite their many advantages, many people don’t have HSAs. Only one quarter of workers within an HSA-eligible plan were enrolled in the accounts, according to a 2022 employer health benefit survey from KFF, an organization focused on public health.
“Unlike HSAs, flexible spending account holders cannot invest the money, and if the employer allows FSA money to roll over from one year to the next, the carryover amount is capped at $610 in 2023. ” “Especially in a high-inflation environment where there is an increasing cost of living, it is helpful to have the opportunity to put more into the HSA and take advantage of the tax-efficient investment opportunity to accumulate growth,” said Kristy Jiayi Xu, founder of Global Wealth Harbor.
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