The highly anticipated release of 2020 numbers for health savings accounts (HSAs) is finally passed. The IRS issued a bulletin on May 28 (2019) outlining a variety of changes implemented between 2019 and 2022. The biggest changes for 2020 involve employee contributions to HSAs.
For the record, an HSA is a tax-free savings account to which employees can contribute. When we say 'tax-free', we mean completely tax-free. The money is contributed from employee paychecks pretax. It grows tax-free as long as it remains in the account, and no tax is applied on any withdrawals as long as the money is used to pay for healthcare expenses.
This makes the HSA an excellent benefit for employees. Not only can it be used to pay healthcare expenses in the here and now, unused money can roll over from one year to the next. It can be used to pay for medical expenses at any time after it is saved, regardless of when that time is.
New Numbers for 2020
The good news about HSAs for 2020 is that individual contributions are increasing. Beginning in 2020, individuals can contribute up to $3,550 to their accounts. That's an increase of $50 over 2019. Contributions to family accounts increase from $7,000 in 2019 to $7,100 in 2020.
Another change involves those aged 55 and over. They can put away an additional $1,000 annually. Furthermore, the extra amount is not subject to government adjustments for inflation. That means an opportunity to put away more money for those extra healthcare expenses that 55+ account holders anticipate in retirement.
Who Qualifies for HSAs
The general guidelines for who qualifies for an HSA do not change in 2020. Qualifying amounts change, but the core principles remain the same. In order for someone to contribute to an HSA, he or she must not:
- be currently enrolled in a high deductible health plan (HDHP)
- have additional health insurance coverage except what is permitted under the 'other' category as outlined by the IRS
- be covered under the Medicare program
- be claimed as a dependent on someone else's tax return.
Beginning in 2020, a health insurance plan qualifies as a high deductible plan if it comes with a minimum deductible amount of $1,400 for individuals or $2,800 for families. Experts recommend contributing at least enough money to cover one's deductible if electing to use an HSA.
HSAs as an Investment Tool
It is easy to see the broad appeal of HSAs as a means of paying for medical care above and beyond one's health insurance. But according to Forbes, a lot of Americans currently enrolled in HSAs are using them as tax-free investment accounts. Forbes says that some 26 million Americans held upwards of $60 billion in HSAs at the start of 2019.
The tax-free nature of the HSA allows the money in an account to be invested tax-free. That means the money can grow if the account holder doesn't need it to pay medical expenses. Any earnings on that money are also tax-free. As such, a person can open an HSA with the intent of investing funds that will eventually be used to pay medical expenses.
All this might not seem wise to a younger person, but anyone who understands the state of Medicare gets it. Medicare coverage is not all that great, and many seniors have to supplement it with extra coverage. Having money to draw from an HSA during retirement makes paying medical costs a lot easier. The benefits are made better by the contribution increases for 2020.