IRS Increases Limits for This Tax-Free Account for 2022

Family saving money in a piggy bank /

The annual contribution limits for health savings accounts keep climbing.

After raising the limits for 2020 and for 2021, the IRS announced on May 10 that it will raise them again for 2022 to account for inflation.

The new limits are:

  • $3,650 for someone with self-only health insurance coverage (up from $3,600 for 2021).
  • $7,300 for someone with family coverage (up from $7,200 for 2021).

The IRS did not announce any change to the limit for catch-up contributions, which allow folks age 55 and older to save an additional $1,000 per year in an HSA. So, for 2022, someone who is at least 55 can contribute a total of $4,650 or $8,300 to an HSA, depending on what type of plan they have.

The rising annual contribution limits are great news for anyone who is eligible to use an HSA, as this type of account offers a combination of tax-reducing features that is unrivaled, even by retirement plans like 401(k)s or individual retirement accounts.

What is a health savings account?

An HSA is an account into which you can deposit a certain amount of money each year to be used to reimburse yourself for eligible medical expenses.

You also may be able to use an HSA as a savings account or an investment account, depending on the account custodian. (Money Talks News partner Lively is an example of an HSA custodian that gives account holders the option to invest the money they put in their HSA in mutual funds and other similar types of investments. However, not all custodians allow account holders to invest.)

As we explain in “3 Ways a Health Savings Account Can Improve Your Finances,” HSAs offer a trio of tax advantages:

  • Your contributions are tax-deductible in the tax year for which they are made.
  • Gains on your contributions are tax-free.
  • Your withdrawals are tax-free if you use them to pay for qualifying health care expenses.

In other words, you will never owe taxes on money that goes through an HSA, provided that you follow the IRS rules for HSAs and make withdrawals for qualifying health care expenses. Not even a retirement account like a Roth IRA offers that degree of lawful tax avoidance.

Additionally, you do not need to earn income to contribute to an HSA, unlike most retirement accounts.

It’s no wonder that the number of HSAs held by Americans jumped by 13% in 2019.

Who is eligible for a health savings account?

The bad news about HSAs is that not everyone is eligible for one. They’re designed to be used by folks with high-deductible health insurance plans.

For 2022, the IRS defines such plans as having annual deductibles of at least:

  • $1,400 for self-only coverage (unchanged from 2021)
  • $2,800 for family coverage (unchanged from 2021)

For 2022, such plans also must have annual out-of-pocket expenses — defined as “deductibles, co-payments, and other amounts, but not premiums” — of no more than:

  • $7,050 for self-only coverage (up from $7,000 for 2021)
  • $14,100 for family coverage (up from $14,000 for 2021)

There are a few other limitations on who can have an HSA. For example, folks on Medicare are ineligible.

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