The Contribution Limit Increase for Health Savings Accounts
The IRS recently raised the contribution limit for health savings accounts (HSAs) for tax year 2027. Individuals can now contribute up to $4,500, while families can contribute up to $9,000. This presents a great opportunity for advisors to educate their clients on the many advantages of HSAs beyond just covering medical expenses.
Federal Tax Law Changes and Expanded Eligibility
A federal law enacted in July 2025 expanded HSA eligibility to include high-cost exchange-based plans, direct primary care arrangements, and telehealth services. This opens up new possibilities for individuals to take advantage of the benefits offered by HSAs.
Investment Opportunities in HSAs
Only 15% of HSA account holders currently invest their funds, according to a report from the Employee Benefit Research Institute. Advisors like Filip Telibasa recommend investing the portion of the account balance that exceeds the health insurance deductible. Encouraging clients to invest in their HSAs can lead to greater growth potential.
Using HSAs as Retirement Savings
One strategy is to grow an HSA enough through savings and investments to use it for nonmedical withdrawals in retirement. While early nonmedical withdrawals are subject to penalties and taxes, withdrawals after age 65 are tax-free. By leaving the HSA untouched and growing it over time, individuals can secure their financial future in retirement.
Considerations for Medicare and Other Rules
It’s important to be mindful of Medicare rules when it comes to HSAs. Enrolling in Medicare at age 65 may result in an excise tax for excess HSA contributions. Advisors and clients should also plan carefully to avoid tax implications for nonspouse heirs in estate planning. Despite these considerations, HSA withdrawals do not affect taxes on Social Security benefits.
The Triple Tax Advantages of HSAs
HSAs offer triple tax advantages: contributions are made with pretax income, the accounts grow tax-free, and withdrawals are tax-free. This makes HSAs a valuable tool for both advisors and their clients looking to maximize tax savings and financial benefits.
