H.R. 6311, The Increasing Access of Lower Premium Plans and Expanding Health Savings Account Act of 2018, was passed on July 25th. The new legislation increases the Self-Directed HSA (Health Savings Account) annual contribution limits for those with employee-only coverage from $3,450 to $6,550. And for those with family coverage, the limits are increased from the current $6,900 to $13,300.
A new provision also allows both spouses to make “catch-up” contributions (an extra $1,000 each year) into a single Self-Directed HSA account provided that they are both HSA-eligible and age 55 or older. The previous law required both spouses to open separate Self-Directed HSA accounts for their respective catch-up contributions.
Some of the other noteworthy features of the bill include:
- It allows Flexible Spending Account (FSA) balances to be carried over to the following plan year as long as the balance in the account does not exceed three times the annual FSA contribution limit.
- Formerly, individuals were allowed to use their Self-Directed HSA funds only for qualified medical expenses that they incurred after they established their HSA, which could have been after they opened the associated high-deductible policy. The new provision treats Self-Directed HSAs opened within 60 days after establishing coverage under HDHP as having been opened on the same day as the policy.
- Specific bronze and catastrophic health plans may now be Self-Directed HSA-qualified plans.
- Everyone who is in the individual market may now purchase lower-premium copper health plans.
- The Affordable Care Act’s annual tax on health insurers has been postponed from 2020 to 2022.
Will the limit increases result in contribution increases?
Even under the lower contribution limits, studies have shown that only around 13 percent of account owners were contributing the maximum. This statistic is surprising since these contributions have a triple tax advantage:
- Employee contributions to the account are deductible from taxable income.
- Interest or capital gains on the assets in the account accumulate tax-free.
- Distributions for qualified medical expenses are excluded from taxable income.
While everyone from financial planners to HR departments have been encouraging the use of Self-Directed HSAs, only 6 percent of the HSA accounts that were opened in 2016 received the maximum annual contribution. That contrasts with the 30 percent of accounts that were opened ten years earlier, in 2006. It shows that the longer someone contributes to a Self-Directed HSA, the more they seem to appreciate the benefits of them. Perhaps increased education on HSAs could prompt even more workers to take full advantage of them.
There are multiple benefits from a Self-Directed HSA
There are now more than 20 million Self-Directed HSA accounts in the United States, with 15 million of those having been opened in the last five years. Apparently, Americans have got the message that Self-Directed HSAs are beneficial in several ways. Here are a few more reasons to max out yours:
- Your account can continue to grow year after year if you do not need the funds for medical expenses.
- You can invest the money in your account in mutual funds.
- You can use your Self-Directed HSA to reimburse expenses that occurred in the past as long as the HSA had been established at the time of the expense.
- Like an IRA, the remaining funds in your Self-Directed HSA can help you finance your retirement.
Since Self-Directed HSAs were created back in 2003, they have been helping Americans handle their medical expenses. This newest legislation, which nearly doubles the limits on contributions, serves to make them all the more valuable.
As the burden of medical coverage is shifted toward the worker, Self-Directed HSAs become an invaluable planning tool. The same can be said for a Self-Directed IRA for your retirement.
At American IRA, we have the experienced professionals to make your Self-Directed IRA transactions go smoothly and quickly. With our simplified process, you can effortlessly diversify your Self-Directed IRA account with any alternative investments you wish to own.