Saving for Retirement in an HSA? Prepare for These 2 Big 2023 Changes

Health savings accounts (HSAs) haven’t been around that long, but they’ve already gained a lot of attention for pulling double duty as a medical savings account and a retirement account. People who use it for the latter purpose find it similar to a traditional IRA, with a few bonus perks.

Like traditional IRAs, HSAs are getting a little shake-up next year thanks to government changes to some of its key rules. Here are two you need to be aware of if you’re already saving in an HSA or are thinking of opening one.

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1. Eligibility requirements are getting stricter

In 2022, you may contribute to an HSA as long as you have a high-deductible health insurance plan, which is defined as one with a deductible of $1,400 or more for an individual or $2,800 or more for a family. But these limits are climbing a little next year.

Beginning in January, you may only contribute to an HSA if you have an individual health insurance plan with a deductible of $1,500 or more. Families need a plan with a deductible of $3,000 or more.

If your health insurance for next year won’t meet this requirement, you’ll have to find somewhere else to stash your retirement funds. But it’s important to note that you can still use your existing HSA funds if you need to for medical savings. That might not be a wise move, though, if you’re trying to reserve this money for retirement.

2. Contribution limits are climbing

Those who are eligible to contribute to an HSA in 2023 will be able to set aside even more money than they’re used to. Those with individual plans can contribute up to $3,650 in 2022, and they’ll be able to set aside an extra $200 next year, bringing their annual contribution limit to $3,850. Family plan contribution limits will jump from $7,300 to $7,750 next year. And adults 55 and older can still tack an extra $1,000 onto these limits, bringing their maximum 2023 HSA contributions to $4,850 and $8,750, respectively.

The money you contribute to one of these accounts reduces your taxable income for the year, and if you use it for medical expenses at any age, it’s tax-free. But the real value for retirement savers kicks in at 65. At that point, the 20% early withdrawal penalty for non-medical expenses goes away, enabling them to use the HSA just like any other retirement account. However, you owe taxes on your non-medical withdrawals.

Another bonus for retirement savers is that HSAs don’t have any required minimum distributions (RMDs). These are mandatory withdrawals seniors must take from most retirement accounts beginning in the year they turn 72. Since HSAs don’t have these, you can leave your money in there as long as you need until you’re ready to withdraw it.

How to get the most out of your HSA in 2023

Stashing a little cash in your HSA next year could be smart if you’re eligible to do so and have some extra money. But if you plan to use the money for retirement savings, you need an HSA provider that will enable you to invest your funds. Otherwise, you’ll earn a small amount of interest each year that might not even keep up with inflation.

Check with a few HSA providers to see what they can offer you. Look into the available investment options and any fees associated with the account. Pay attention to the ways you can access your money when you need it as well. Then, see if you can set up recurring deposits to your HSA, so you don’t forget to put money there. Just be careful not to exceed the contribution limits outlined above.

Be sure to stay up to date on future HSA rule changes too. The government reviews contribution limits and eligibility requirements every year. Paying attention to these changes can help you avoid problems with the government and get the most out of the account.

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