"The Changing Landscape of HSA Contributions in 2024: What You Need to Know"

Welcome to another episode of Wealth Builders! Today, we dive deep into the world of Health Savings Accounts (HSAs) and the notable changes set for 2024. If you're aiming to make the most of your healthcare finances or wondering how the recent IRS updates could impact you, this episode is packed with all the essential details you need. Whether you're an individual or supporting a family, understanding the 2024 HSA landscape is crucial. Let's unravel the intricacies together. Make sure to check out the blog post as well here: HSA Contribution Limits for 2024: What's New and How You Can Benefit | StatonWalsh

1. Introduction
   • Quick overview of the evolving landscape of HSA contributions.
   • The significance of 2024 for individuals and families regarding HSA changes.
2. The 2024 HSA Contribution Landscape
   • Announcement of the new HSA contribution limits:
     • $4,150 for individuals (up from $3,850 in 2023).
     • $8,300 for families (up from $7,750 in 2023).
   • Emphasis on the expanded opportunity to save and cater for healthcare expenses.
3. Understanding the Reason for the Leap
   • Explanation of annual HSA adjustments in relation to inflation.
   • Information on calculation basis provided by the Society for Human Resource Management (SHRM): Consumer Price Index.
   • Historical perspective: comparing the 5.5% increase from 2022 to 2023 with the previous 1.4% rise from 2021 to 2022.
4. The Advantages of Higher HSA Contribution Limits
   • The correlation between HSAs and high-deductible health plans (HDHPs).
   • The growing trend: Asset growth in HSAs, highlighted by the recent milestone of $100 billion, as reported by HSA consultant Devenir Group LLC.
5. Eligibility and Updates to HDHPs
   • Criteria for HSA contribution eligibility.
   • Deductible requirements for 2024:
     • Self-only coverage: $1,600 (a rise from $1,500 in 2023).
     • Family coverage: $3,200 (an increase from $3,000 in 2023).
   • Update on employer contribution limits to health reimbursement arrangements for 2024: $2,100, marking an increase from the 2023 limit of $1,950.
6. What Does the Future Hold?
   • Encouraging listeners to leverage the new HSA limits for their financial and health insurance strategies.
   • The overarching theme: The raised HSA contribution limits empower individuals to better manage their healthcare costs.
7. Closing Thoughts
   • Recap of key takeaways from the episode.
   • The importance of staying informed and proactive in the face of such changes.

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This podcast is for informational purposes only. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. StatonWalsh and Founder’s Financial Securities do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Ryan Staton is an Investment Advisor of, and securities offered through, Founders Financial Securities, LLCMember FINRA/SIPC and Registered Investment Advisor.

Devin Walsh is an Investment Advisor of, and securities offered through, Founders Financial Securities, LLCMember FINRA/SIPC and Registered Investment Advisor.

Check the background of this firm on http://brokercheck.finra.org/

Transcript

Intro/Outro Voice (00:00):

This is Wealth Builders presented by StatonWalsh, a show designed to pull back the curtain of the financial industry and bring true transparency to the forefront of conversation on the show. We cover topics like financial education, current events, and interview business leaders and industry experts with the ultimate goal of helping listeners discover their own path to financial independence.

Devin Walsh (00:38):

Hello everyone and welcome to this week's episode of Wealth Builders. Today we are going to be talking about all things health savings accounts, also known HSAs and the landscape, looking at 2024, and really talk about leveraging the substantial increase in contribution limits and taking advantage of all the tax benefits of HSAs to Ryan. I know this is something that you always talk about and I always think it's something that's not overly utilized by people, but we're doing some research and say there's more than 30 million Americans that actually have an HSS A, which is good to hear, probably going to be more, but how many of those do you think is actually used and do these people know the importance of it? Are they taking full advantage of it?

Ryan Staton (01:23):

Yeah, and that's a great question. I'm not sure that many understand, and speaking from experience of our practice and folks that we've worked with, whether people have access to an HSA or utilize it, it seems to be something that often gets overlooked. It's a account that I think is misunderstood in a lot of ways and something that when you're clicking through annual benefits enrollment, you kind of look at it, you might take advantage of it, you may not. There are some specific rules about even getting access to it. So I think it's an incredibly powerful tool, mostly because of the uses for not just medical expenses today, but over the long term, the ability to take advantage of some tax tax advantages upfront today, but also the ability to distribute that money tax-free to yourself at some later date, whether that's within the same year that you make contributions or in the future. So there's a lot of great features to this. There's an investment component as well. It's just something that I think more Americans need to get educated on what it is exactly, but then also how they can utilize it if they have it available to them.

Devin Walsh (02:35):

Let's talk about education. Let's really educate our listeners on the benefits in HSA. You said something for taxes, right? So taxes, people are always looking for tax advantages, tax deferred ways to save tax-free income. So I know there's a few different ways that HSAs can be, or health savings accounts can be used for tax efficient deferrals used for health in the future hostile retirement. So let's do a little brief explanation of the HSA, how it's broken down and why it might be utilized in the ways to utilize it in the future and for people to start putting away money now.

Ryan Staton (03:12):

So at a high level, a health savings account is designed to help offset future or current healthcare expenses. And so off the top, the first rule of an HSA or HSA eligibility is going to be dependent on what type of health insurance plan that you have or that you participate in. So typically folks that have access to HSA are going to have high deductible plans in the health insurance landscape. So the HSA gives you a buffer or an additional account that you can utilize to offset larger deductibles to offset maybe larger copays and some other things that exist when you have a plan that a high deductible health plan that doesn't cover as much as maybe some of the richer medical plans out there. From a tax perspective, the way these accounts are treated in the eyes of the IRS is they are tax deductible contributions above what's referred to as above the line on a tax return, which is essentially a tax deduction from gross income, the money can go into the account and can sit there and earn interest and or be invested in traditional markets.

(04:22):

That growth or interest received on the money is considered tax deferred, just like many retirement accounts that folks are familiar with. And then when you take the money out on the backend, as long as you use it for qualified medical expenses, it's considered a tax-free distribution. Regardless if the money has grown from $1 to $2 in the account, as long as you use it to cover your medical expenses, there's no tax to be paid on that distribution. And so that's the real kicker is that most people are familiar with tax deductible accounts where you can put money in, you can defer taxes, and then you have to pay it at some point later. An HSA because it is designed to pay for qualified medical expenses, could actually be a dollar that you could get a deduction on, grow that dollar and then ultimately spend it and never have to pay a dime of tax on it.

(05:15):

There are rules, full disclosure rules and regulations on how to do that. It is not a piggy bank that can be used for any particular purpose, but if you use it the way that it's designed, it can be an extremely powerful tool, not just while you're working and while you're accumulating, but also in your retirement years. Because once you establish the account and you put money into it, and let's say you never take a dollar out of it, you can continue to defer that and use that money all the way through retirement until you pass away.

Devin Walsh (05:45):

So with that, so everybody talks age 59 and a half. So when you're deferring that, so I know we've talked in the past about keeping track of medical expenses. Is it just for that or is if you age past age 59 and a half can use that no matter what for income and retirement? Or is it only for past medical expenses we've used throughout our working lives?

Ryan Staton (06:05):

Yeah, so the tricky part is that there are strategies that you can implement over the course of your life, and one that you're kind of alluding to is I want to take money and put it into my HSA, but I'm still going to pay for my medical expenses out of pocket. I still incur those expenses and I've still paid them, and so they count on paper as a qualified medical expense. Whether I take the money out of my HSA to offset my out-of-pocket costs, that's a matter of preference for me. In theory, as time goes on, if you put money into this account, let's say you invested or you put it into some kind of interest bearing investment or security, it will grow over time. And so you get the benefit of that growth in theory if you've properly tracked an account at your medical expenses over the course of your life, which I know in some cases can be challenging and it's a little bit of work, but if you do that, you can reimburse yourself at any time in the future when you choose.

(07:04):

So put another way, if I put $10,000 into my HSA over the next couple of years and I pay all my medical expenses out of pocket and I have one year where I have a lot of expenses and it's $10,000 worth of medical expenses 20 years from now, but now my 10,000 has grown to 20 or 30,000, I can reimburse myself for that $10,000 expense. Even though that may have happened five years ago, I can decide to take money out of my HSA and reimburse myself for that. So you do have to, there's a level of documentation, I don't want to put it, we try not to frame it as it's another source of retirement income because truthfully, it's not really income. It's more geared towards a reimbursement of my own expenses, but unlike a flexible savings account or FSA, it doesn't have to be spent every year. I can keep rolling that balance over and keep allowing it to grow. So there are some unique strategies and some things that you can do to get creative with the balance, but you do have to follow a certain set of rules. So there are some great things you can use it to pay for things in retirement, like medical expenses, long-term care is another one that let's

Devin Walsh (08:16):

Talk about that

Ryan Staton (08:16):

Gets overlooked

Devin Walsh (08:17):

Long-term care. So that's something probably a lot of people don't know. So you can actually use the money that you've saved up over time in your HSA to pay for long-term care premiums is what you're saying?

Ryan Staton (08:28):

Yeah. So if you wanted to utilize your HSA to pay for long-term care, there is a separate table that the IRS has published that states based on your age, you get a tax deductible amount of money that you can contribute towards things like long-term care, for example. And that's an exception to some other deductibility rules. And we don't have to get into the weeds on tax code at this point, but ultimately your age will determine how much money each year you can get a deduction on for things like long-term care expenses. So that table can also be used as a distribution calculator from your HSA in terms of how much money you can take tax-free out of your HSA in order to fund long-term care expenses and ultimately a combination of that and cashflow can supplement it. You could in theory pay most, if not all, depending on the cost of the types of policies. And so there's a lot of variables and factors there. But to your point, yes, you can utilize HSA funds to supplement or pay for the cost of long-term care insurance if it has the ability to do

Devin Walsh (09:36):

That. Sounds, it's almost like a Swiss Army knife. It sounds like. There's so many things you can do with a health savings account. So let's say I'm a new employee starting at a company

(09:44):

And I'm going through my benefits and to ask me how much I contribute to 4 0 1 k, what health insurance do you want? Do you want life insurance? All that kind of stuff. So at what point do you say, Hey, let's max out our HSA compared to should I max out my 4 0 1 K first? Anything on top of that should be HSA? Should it be a combination of both? Obviously it's different person to person, but when do you take your dollars that you want to defer and save towards something in the future compared to your 4 0 1 K work, IRA at home, whatever it may be compared to an HSA?

Ryan Staton (10:20):

Yeah, so much like anything else in financial planning, it's always going to be, it depends answer, but generally speaking, you want to look at not just the tax deductibility of the account, but also the practical usage. So as a young person, for example, HSAs give you a ton of flexibility because you can afford to pay for, I'll use myself. I always like to use myself as an example. I don't go to the doctor a ton, so having a high deductible health plan helps me save on premium costs. What it also does is opens the door for me to contribute to an HSA, so I can take some of that cost savings and put that into an account, maybe invest some of it. I can grow it over time and then down the line, if I do have a claim or an unforeseen circumstance, I have a choice now I can come out of pocket to cover my deductible or cover that larger expense.

(11:12):

Or I have an HSA as a backstop that I've built over a number of years. And so in financial planning, we talk about the idea of compounding interest all the time and giving ourselves a chance to be successful in every facet of life and under many of life's different circumstances and curve balls that it throws at us. So I view this as a tool that tax deductibility is great. You have some maximums and just like a 4 0 1 K, you're going to have an annual limit and what you can contribute either as an individual or a family, but it is also not an account where it's readily accessible, even though you can invest the money and you can get access to it for medical expenses, it's not something that you want to put money into that you're going to anticipate needing for something other than medical expenses.

(11:58):

And so that's a hard thing to plan for, right? We don't know when we're going to need it. There's a lot of things that qualify for medical expenses. By the way, your typical items that you would buy from drug stores and things like that, your daily, I don't say daily usage, but things that you use pretty regularly that you would not anticipate would qualify for an HSA distribution actually do. And so you have choices. You pay cash for that. You can use the HSA if you're someone that you know you're going to have some upcoming medical expenses, procedures, things of that nature, but you still are in a high deductible plan. It can be a powerful tool basically just to get a tax deduction for the services or the, I shouldn't say services, but for the medical procedures that are being performed where now under the current tax code, certain medical expenses, in order to get deductible medical expenses, you have to spend a percentage of your income.

(12:52):

And it's kind of hard to do, I mean for most people. So using an HSA as kind of a, I'll say a back door to getting tax deductible medical expenses when they normally wouldn't be available is another purpose. So I think that from a long-term planning perspective, the account has, it makes a lot of practical sense when you look at some of the largest expenses too in retirement, when we look at retirees, one of their largest expenses is healthcare. And so an average retiree, I think the current statistics are they spend roughly $300,000 after age 65 on medical expenses.

Devin Walsh (13:29):

That's crazy.

Ryan Staton (13:30):

And that could be premiums, that can be a bunch of different stuff. And so to that point, one of the reasons, to your point of how much should I put in my 4 0 1 K versus my HSA, ultimately one of those accounts is going to supplement that cost or both. And so when you get to retirement, the reason you're saving into a 4 0 1 K or IRA or any retirement account is I want to be able to support myself after I've stopped working. And so that includes medical expenses and everything else that we can think of. And so if we know or we have an inkling that healthcare is going to be a big part of our retirement spending, at some point it may make more sense to allocate some of those funds to the HSA because it is tax deductible. It still has the same tax deferral as a pre-tax 4 0 1 K, but you get tax-free treatment on the backend, which from when we look at how much money I need in retirement and how can I keep every dollar that I'm taking out of my account, that's ultimately what we're trying to get to. And so for tax diversification, I think there's a case for HSAs in a financial plan

Devin Walsh (14:38):

That's great information there. And I know this past year from 22 to 23, we saw a pretty significant increase about 5.5% from 22 to 23 compared to only 1.4% from 21 to 22. The amount that we can contribute, whether as an individual or as a family, and obviously we know it's because of inflation, but for individuals going into 2024, individuals can now contribute $4,150 and the family can do 8,300. So when we're talking about compounding interest and be able to invest this money for the long-term, especially if it's a young professional with a family or whatever it may be, that's significant. It's real savings powers there to defer this for the future. And you mentioned about investing this money.

Ryan Staton (15:26):

So

Devin Walsh (15:28):

Is there certain investments, is there a certain fund family that they give you? Is it open architecture, say, Hey, I want some Vanguard funds, some T row funds, I want this. How is that working? How should people invest that money should be aggressive, should be balanced, should be more defensive.

Ryan Staton (15:40):

Yeah, just like any other type of account, you have to look at it through the lens from an investment perspective, time horizon, risk tolerance, all of those things. And so if your anticipation is to not touch the money and you're looking at it for long-term planning perspectives, so not distributing it for medical expenses along the way, you may end up being a little more aggressive with that. To your original question about what types of investments are available, sometimes that's dependent on platforms. So if it's offered through your employer and they already have an HSA platform that they set up, maybe they contribute to it on your behalf, you may have some limitations there. Typically, most large brokerages and institutions have HSA capability in terms of account registrations, which means it could be open architecture. It is possible where you could invest in pretty much anything that you could think of.

(16:35):

Individual stocks, ETFs, mutual funds, it kind of runs the spectrum there. So you'll have that level of flexibility if you can find the right partner to place that account and to utilize it in whatever way you see fit. What I would say is much like anything else, much like a normal brokerage account, for example, when we're talking to clients, if you think that you're going to need some of that liquidity, you're going to need that money for an expense in the near future. You certainly don't want to invest that into long-term vehicles. You want to make sure that you're taking an appropriate amount of risk and that you're accounting for, here are some things that I know are on the horizon. And so you don't want to take risk with that money because then you also, we talked a lot about the positives of compounding interest and what can happen 10, 15 years from now.

(17:23):

But there's also a very real possibility in volatile markets that you put money into it, it gets invested, you lose five, 10% and then you have to take it out at a loss, which doesn't, it kind of washes out some of the benefits that we talked about. So you have to look at it and treat it much like any other type of investment account when you're looking at the investment options and capabilities. But it is possible you can kind of slice it up any way that you see fit based on what's at the provider or the institution that you're using.

Devin Walsh (17:53):

Great. So before we finish, I also want to talk about eligibility one more time. You touched on it earlier with the high deductible health plans, but what else makes you eligible or not eligible for a health savings account? HSA? What are some things people should know that might not have on, Hey, great, I'm eligible, I can use this or

Ryan Staton (18:12):

Not.

(18:13):

So industry, the financial services, insurance industries and kind of everyone else. Governmental agencies are great at creating acronyms for everything. So you've probably seen some of these things and maybe not known what they mean exactly, but basic eligibility in order to contribute to an HSA, you must have an HSA qualified HDHP or high deductible health plan is what that stands for. And so the other part of it is you cannot be enrolled in Medicare. So if you're age 65 and you're enrolled in Medicare, you can no longer contribute to an HSA. So that's effectively the retirement age in a sense. So if you have one of these plans today and you contribute, but then you, let's say you change employers and you don't have access to this anymore, you don't lose access to the money that you put in the plan, the plan still exists, the account still exists.

(19:10):

You don't lose the HSA just because you're not in a high deductible plan anymore, but you do lose the ability to contribute. So that's really the big piece of that. Next year with the increased limits, that high deductible health plan must have a deductible of at least $1,600. So 1,600 for self only coverage or $3,200 for family coverage. Those are both adjusted inflation adjusted limits as well. Typically when you enroll with through your employer, or if you buy health insurance on an exchange, you'll see some of these acronyms out there, the HDHP, there will also be some kind of note usually in the benefits or the explanation of the insurance that says HSA eligible for example. So there's different, there's a lot of alphabet soup. I think the big thing is figuring out if you're even eligible in the first place. If you are eligible, then everything we talked about is possible and accessible.

(20:09):

If you don't have that type of plan, you would either have to at next open enrollment, if you're an employee, change to a high deductible plan or if you're a self-employed individual, evaluate what's available to you in the open marketplace. But if you don't have those options available, unfortunately HSAs are not, your contribution is limited to HSAs, so they wouldn't be available. But it is not, unfortunately not something that's universally available to everyone. There are some rules and some guardrails that IRS has set into place because they are for the purpose, first and foremost of saving for medical expenses when you have more exposure to those costs.

Devin Walsh (20:50):

Ryan, when we started this episode, I was like, how long can we talk about HSAs? Say it's almost 22 minutes. It's pretty good. I feel like we can go even longer. I mean, it's such a topic that's keep people engaged, that's underutilized. I don't

Ryan Staton (21:02):

Want to bore anyone to

Devin Walsh (21:02):

Sleep. Exactly. Let's talk about some tax code

Ryan Staton (21:04):

Now.

(21:05):

Yeah, there are certainly some benefits. I mean, I think the biggest of which that gets the most attention is obviously tax, but I think from a medical perspective as well and helping you offset expenses that you may not have planned for, I think it's a great tool. It's a great savings vehicle as well as a great spending tool as well. And from a tax code perspective, they often gets coined the triple tax-free nature of every dollar that goes into an HSA, so not taxed on the front end, not taxed as it grows and not taxed when you take it out for the right purpose. So I think that's extremely powerful. And for those of us, and there's no secret to those that know me, I don't like paying taxes when I can,

Devin Walsh (21:49):

Not a tax fan,

Ryan Staton (21:50):

Not a big fan, but HSAs are another way that you can utilize a dollar and potentially keep a whole dollar to use for a purpose. So definitely good stuff there. Definitely more to unpack probably, but it is very much an individual case by case type of account because of the rules and restrictions. But it is certainly powerful when

Devin Walsh (22:11):

Understood. Awesome. Well that has been a heck of an episode all about health savings accounts, what we can expect in 2024 with the new limits. So as always, if any questions about anything you heard today, don't hesitate to reach out, schedule a time with us. But thank you so much everyone, for listening today. Make sure to subscribe, tell your friends, and we look forward to the next episode. Have a great weekend.