The tax advantages of a Health Savings Account (HSA) can be huge, but the increase in tax deductible contribution limits for 2025 is relatively modest. All the same, optimizing your HSA can be a smart addition to your well-thought-out retirement plan. If nothing else, it can help you pay fewer taxes each year.
For 2025, the annual HSA contribution limit for an individual with self-only coverage under a high-deductible health plan (HDHP) will be $4,300, up from $4,150 in 2024. It’s not a huge jump, but every little bit helps.
For an individual with family coverage under an HDHP, the HSA contribution limit for 2025 will be $8,550, up from $8,300—another small example of the marriage penalty in our tax system.
HSA Catch-up Contributions
If you are age 55 or older by the end of the calendar year, you can contribute an additional $1,000 to your HSA.
To be eligible to contribute to an HSA, you must have an HSA-qualified high-deductible health plan (HDHP) and have not yet enrolled in Medicare. Medicare typically begins at age 65. The IRS also updated the definition of an HDHP for 2025. Next year, a health plan with an annual deductible that isn’t less than $1,650 for individual coverage, up from $1,600 this year, or $3,300 for family coverage, up from $3,200 in 2024, will be defined as a high-deductible health plan.
Why Use A Health Savings Account?
Your HSA allows you to set aside pre-tax money to pay for out-of-pocket medical expenses. As you probably know, these expenses can really add up, even with good health insurance. You may not know that HSA funds can also be used to pay Medicare Part B, Part D, and Medicare Advantage premiums for those 65 or older.
There is no required minimum distribution on an HSA account. Many people are actually looking to turn their HSA into another type of retirement account. Your funds can be invested, grow tax-free, and come out tax-free if used as reimbursement for medical expenses. So, start saving your receipts for medical care.
Keep in mind you get a tax deduction when you contribute to your HSA and won’t owe taxes on withdrawals if used for approved medical care or prescriptions. You might think of it as a Retirement Medical Care Roth IRA. Be sure to ask your tax-planning financial planner about how to maximize the benefits of a health savings account for your retirement plan.
Can A Health Savings Account Lower Medicare Premiums?
There are two main ways that a Health Savings Account can help you spend less on your Medicare premiums. First, if you are making less taxable income from a retirement account, you are less likely to get hit with IRMAA surcharges that can substantially drive up the cost of your Medicare premiums each year.
The second way a Health Savings Account can minimize the cost of Medicare premiums is by using tax-free withdrawals from your HSA to pay your Medicare premiums. High-income-earning Californians could see their net after-tax cost of Medicare drop by 50% when using tax-free income from an HSA to cover the cost of Medicare in retirement.
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