2025 Limits for Health Savings Accounts

Health Savings Accounts (“HSAs”) have become a popular option for employees looking to save money on healthcare expenses. HSAs allow individuals to set aside pre-tax money to pay for qualified medical costs, providing significant tax advantages.

What is an HSA?

HSAs are a tax-advantaged savings account designed for individuals enrolled in high-deductible health plans (“HDHPs”). HSAs allow employees to contribute pre-tax dollars that can be used to pay for qualified medical expenses, such as deductibles, copays, prescriptions, and even certain dental and vision costs. Unlike Flexible Spending Accounts (“FSAs”) or Health Reimbursement Arrangements (“HRAs”), HSA funds belong to the employee and can roll over year to year, making them an excellent long-term savings option for healthcare costs.

How Does an HSA Work?

HSAs are designed to help individuals manage their healthcare costs with several key advantages:

• Pre-Tax Contributions: Contributions to an HSA are made on a pre-tax basis, reducing your taxable income. If your employer offers payroll deductions, contributions are automatically taken from your paycheck before taxes.
• Tax-Free Growth: The money in your HSA grows tax-free over time, and any interest or investment earnings are also tax-free, provided they are used for qualified medical expenses.
• Tax-Free Withdrawals: Funds used to pay for qualified medical expenses can be withdrawn tax-free at any time. You can use HSA funds for a wide range of healthcare services, from doctor visits to prescriptions to medical supplies.
• Rollover and Portability: Unlike FSAs, any unused HSA funds roll over from year to year. You never lose the money you contribute, and the account stays with you even if you change jobs or retire.

HSA Contribution Limits for 2025

The IRS sets annual contribution limits for HSAs, and these limits are adjusted each year. For 2025, the HSA contribution limits are as follows:

• Individual Coverage: $4,300
• Family Coverage: $8,550
• Catch-Up Contributions: If you are age 55 or older, you can contribute an additional $1,000 to your HSA each year.

These limits apply to the total combined contributions from both you and your employer. It’s important to ensure that your contributions do not exceed these limits to avoid potential tax penalties.

Who is Eligible for an HSA?

To contribute to an HSA, you must be enrolled in a HDHP and meet the following eligibility criteria:

• Enrolled in an HDHP: You must be covered by an HDHP that meets IRS guidelines for minimum deductibles and maximum out-of-pocket limits. For 2025, an HDHP is defined as a plan with a minimum deductible of $1,650 for individual coverage or $3,300 for family coverage.
• No Other Health Coverage: You cannot have other health coverage, such as a traditional health plan, that disqualifies you from contributing to an HSA.
• Not Enrolled in Medicare: If you are enrolled in Medicare, you cannot contribute to an HSA, although you can still use any existing HSA funds for qualified expenses.
• Not Claimed as a Dependent: You cannot be claimed as a dependent on someone else’s tax return.

Key Benefits of an HSA

• Triple Tax Advantage: HSAs offer a unique triple tax benefit: contributions are tax-free, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free.
• Long-Term Savings: Since HSA funds roll over from year to year, they can serve as a powerful long-term savings vehicle. Many people use their HSA to save for future medical expenses in retirement.
• Flexibility in Spending: HSA funds can be used for a wide range of qualified medical expenses, including deductibles, copays, prescriptions, dental care, vision care, and even some over-the-counter medications.
• Retirement Benefits: Once you turn 65, you can withdraw HSA funds for any purpose without penalty (though non-medical withdrawals will be taxed as income). This makes HSAs a versatile savings tool for healthcare and retirement planning.

What’s the Difference Between a HSA, FSA, and HRA?

It’s easy to confuse HSAs, FSAs, and HRAs, but each account has different rules and advantages:

• Funding: HSAs can be funded by employees, employers, or a mix of the two. FSAs are entirely employee-funded, and HRAs are entirely employer-funded.
• Contribution Limits: HSAs have higher contribution limits than FSAs, making them a better option for those looking to save more for healthcare.
• Rollover Rules: HSA funds roll over year to year, while FSAs typically have “use it or lose it” rules (though some offer grace periods or limited carryovers). HRAs may allow rollovers, but this depends on the plan design.
• Portability: HSA funds are fully portable and stay with you if you change jobs or retire, unlike FSAs or HRAs, which are tied to your employer.

Conclusion

Health Savings Accounts offer employees a powerful way to save for both short-term medical expenses and long-term healthcare costs. With the flexibility to roll over funds, make tax-free contributions, and save for retirement, HSAs are a valuable benefit for anyone enrolled in a high-deductible health plan. Understanding the contribution limits for 2025 and how HSAs compare to other health savings accounts can help you make the most of this financial tool.