This key retirement savings plan gets a boost for 2023

Health care is a major expense for many people during their working years. And often, it becomes an even bigger expense in retirement.

That’s why it’s so important to set funds aside for future healthcare costs. And Health Savings Accounts (HSAs) are a great bet in this regard.

HSAs allow you to set aside money for short-term and long-term medical expenses. Unlike Flexible Spending Accounts (FSAs), HSA funds never expire, which is why HSAs are often seen as a retirement savings tool – even though you can access the money on one of these accounts long before retirement.

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What makes HSAs so unique is that they have a triple tax advantage. Contributions are made with tax-free dollars, and money that is not withdrawn from an HSA can be invested for further growth. These earnings are then tax exempt, just like withdrawals, provided they are used for eligible medical expenses.

Like IRAs and 401(k) plans, annual contribution limits for HSAs can change based on factors such as inflation. And in 2023, HSA savers will have the ability to put more money into their accounts.

HSA limits increase

The amount of money you can contribute to an HSA depends on whether you are saving as an individual or at the family level. If you have personal coverage, you can currently contribute $3,650 to an HSA. In 2023, this limit will increase to $3,850.

If you have coverage at the family level, you can currently contribute $7,300 to an HSA. In 2023, this limit will increase to $7,750.

It should also be noted that savers age 55 and older are eligible for a $1,000 catch-up HSA contribution in addition to the above figures. These are similar to the catch-up contributions that older savers can make in IRAs or 401(k).

Eligibility also changes

Not everyone can afford an HSA. To qualify, you must be enrolled in a high-deductible health insurance plan. And the definition of that also changes in 2023.

This year, you may qualify for an HSA with a minimum deductible of $1,400 for personal coverage and $2,800 for family coverage. Next year, those minimums will increase to $1,500 and $3,000, respectively.

Meanwhile, the current payout maximums for HSAs are $7,050 for personal coverage and $14,100 for family coverage. In 2023, these increase to $7,500 and $15,000, respectively.

It is important to review the details of your plan and ensure that you are still able to participate in an HSA. An eligible year does not automatically guarantee the same for the following year.

However, if you are eligible to fund an HSA in 2023, it is definitely worth doing. The money you put aside could grow to a much larger sum over time, allowing you to cover your senior health care costs without worry.

Many retirees find that health care is actually their biggest monthly expense, even more so than housing. So the more money you can bring into retirement to pay for medical bills, the less likely you are to experience stress in your old age.

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