The IRS doesn't always give away tax breaks for free. Often, there's some sort of catch involved.
With a traditional IRA or 401(k) plan , for example, you get a tax break on the money you contribute. But in return, you're not allowed to access that money before age 59 1/2, and taking an early withdrawal generally results in an expensive 10% penalty.
Health savings accounts , or HSAs, work similarly. While these accounts are loaded with tax breaks, there are strict rules you have to follow to avoid being penalized for taking a non-qualifying withdrawal. But because the tax benefits of HSAs well outweigh the drawbacks, these plans are definitely worth saving in provided your health insurance plan is compatible.
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Meanwhile, HSAs are getting a big boost for 2025, which means you have the potential to reap even more benefits from one of these plans. Here's what you need to know.
What HSA limits look like for 2025
Right now, HSA contributions for self-only coverage max out at $4,150. Come 2025, this limit is rising to $4,300.
Meanwhile, HSA contributions for family coverage currently max out at $8,300. In 2025, that limit is rising to $8,550.
You should know that these limits apply to savers who are under the age of 55. If you're 55 or older, you can add $1,000 to whichever category applies to you.
HSA requirements for 2025
One major downside to HSAs is that not everyone gets to participate in one. To be eligible for HSA contributions, you must be enrolled in a qualifying high-deductible health insurance plan.
For 2024, the minimum deductible you need is $1,600 for self-only coverage and $3,200 for family coverage. In 2025, these minimum deductibles are rising to $1,650 and $3,300, respectively.
There's also an out-of-pocket maximum your health plan must conform to. Right now, it's $8,050 for self-only coverage or $16,100 for family coverage. In 2025, these numbers are rising to $8,300 and $16,600, respectively.
Take advantage of higher HSA contributions in 2025 if you can
The more money you put into an HSA, the more income you can shield from taxes. Plus, HSAs let you invest your money and enjoy tax-free gains. And withdrawals are tax-free as well, provided they're taken to cover qualifying healthcare expenses.
Better yet, you can take those withdrawals whenever you want. A good strategy, though, is to reserve that money for retirement. This way, your HSA investments get to grow for a longer period of time. Plus, you'll be reserving that money for a period of life when your healthcare costs might increase substantially.
Another important HSA rule you should know about is that once you turn 65, you won't face the typical 20% penalty associated with taking a non-medical withdrawal. From that age onward, you can remove funds from your HSA for any reason penalty-free.
In the case of a non-medical withdrawal, you'll pay taxes on the sum you remove. But that's no different than paying taxes on withdrawals from a traditional IRA or 401(k).
So if you're able to max out your HSA in 2025, do it. You only stand to benefit in one shape or form.
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