2023 Will Be a Huge Year for HSA’s

We have discussed in previous articles the benefits for contributing to HSA’s. You can make pre-tax contributions, hold and grow investments in them, with those deposits and growth also being tax-free on withdrawal for medical expenses. For people age 65 and older, funds can also be withdrawn without penalty. This makes the HSA both the preferable savings tool for long-term medical expenses over LTC insurance and the most powerful overall savings vehicle for retirement. 

A major change is coming that has the potential to add tens or even hundreds of thousands of dollars in additional savings to these accounts. The IRS has release initial guidance that in 2023, the amount which can be saved in an HSA is being increased not by the usual $50 a year, but by $200 a year for individuals and $450 for families with HDHP coverage. Assuming an S&P 500 average return of 10.5%, if you just increase your health care savings by this amount alone and maintain that for 30 years, individuals will have saved approximately $40,000 more and couples will have saved $90,000 more during that time. If you don’t end up needing the money straight away, this could easily grow further into six-figure territory worth of savings that is tax-free for medical expenses and is not subject to required minimum distributions (RMD’s), unlike Traditional IRA’s and 401k’s.

Health care costs are one of the biggest cost centers for seniors. Long-term care insurance is prohibitively expensive, carries the risk of insurer default, and provides an uncertain benefit that potentially is never realized. Long-term savings and growth in an HSA provide a much stronger benefit that is accessible for any need, medical or otherwise, without carrying the risk of insurer default, and is doubly tax-advantaged both pre-tax and post-tax if used for medical expenses. Speak with your financial planner about the role an HSA can play in improving your household’s long-term savings.

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