The IRS has announced new health savings account contribution maximums for the 2020 health insurance plan year.
Employees who have an HSA linked to a high-deductible health plan (HDHP) will be able to contribute to their HSA up to a certain level to help pay for health care and pharmaceutical expenses.
Funds going into your employees’ HSA accounts are deducted before taxes during each paycheck and the balance can be carried over from year to year.
Many HSAs also allow employees to invest the funds like they would with a 401(k). Because of this, HSAs have become a savings vehicle of sorts for people who are saving for health care expenses they are expecting in retirement.
HSAs can only be offered with an attached HDHP.
If you as an employer also contribute or partially match your employees’ contributions, they benefit even more, especially when compounding investment returns build up in the long term.
The IRS adjusts contribution limits for HSAs yearly based on inflation. For 2020, those limits will be:
Also, remember that individuals who are 55 or older can make an additional $1,000 in catch-up contributions.
Besides the contribution maximum increasing, the deductible requirement for an attached HDHP will also climb for 2020:
One of the best benefits from an HSA is the long-term advantage of being able to carry over balances year after year and let it build up for medical expenses in retirement. But, one of the key points that your employees should know is that if they use the funds in their HSAs for purposes other than qualified medical expenses, they have to pay a 20% penalty.
The website Investopedia recommends that your employees: