Are you married? Age 55 or older? You might have an opportunity to open up a small health savings account and get a $1,000 annual tax deduction!
HSA Contribution Limits
Health Savings Accounts (“HSAs”) have annual contribution limits. The limits depend on two things: medical insurance coverage through a high deductible health plan (a “HDHP”) and age. Here are the 2024 HSA contribution limits (hat tip to Kay Bell).
| Age | HDHP Self Coverage | HDHP Family Coverage |
| Under Age 55 | $4,150 | $8,300 |
| Age 55 or Older | $5,150 | $9,300 |
Family HDHP Coverage
Family HDHP coverage is coverage of an insured plus either or both a spouse or a dependent(s). Coverage must be the only medical insurance coverage the person has.
HSA Catch-Up Contributions
Those age 55 or older can contribute an extra $1,000 per person to an HSA every year. While the “normal” contribution limits ($4,150 self / $8,300 family) are indexed for inflation, the $1,000 annual catch-up contribution limit is not indexed for inflation.
Two additional notes: First, as a practical matter, at age 65 a taxpayer will no longer qualify for an HSA (and thus, the catch-up contribution). This is because at age 65 most Americans switch from a HDHP to Medicare for their medical insurance.
Second, for IRAs and qualified plans (such as 401(k)s), the age to be eligible to make “catch-up” contributions is 50. For HSAs, the age is 55, not age 50.
HSA Contribution Limits for Married Couples
The normal contribution limits are coordinated. Thus, the family contribution maximum for a married couple is normally $8,300, not $8,300 times two. Here’s an example of how that works:
Example 1: Steven and Holly are married, both age 45, and covered by a family high deductible health plan for all of 2024. Thus, each has an HSA contribution limit of $8,300. However, when looking at Steven’s limit, we must look at what Holly has contributed to her HSA for 2024. If Holly contributes $8,300 to her HSA for 2024, then Steven’s HSA contribution limit is reduced by Holly’s contribution to $0.
Interestingly enough, catch-up contributions are not coordinated. Let’s change the example to have Steven and Holly be both age 55.
Example 2: Steven and Holly are married, both age 55, and covered by a family high deductible health plan (provided by Holly’s employer) for all of 2024. Thus, each has an HSA contribution limit of $9,300. Holly maxes out her 2024 HSA ($9,300) through payroll withholding (to get the payroll tax exclusion as well as the income tax exclusion). When looking at Steven’s normal contribution limit, we must look at what Holly has contributed to her HSA for 2024. Since Holly maxed out her HSA, Steven’s normal contribution limit is $0. However, Steven’s catch-up contribution limit is still $1,000, since it is not reduced for contributions Holly made to her HSA.
Steven is eligible for what I refer to as a Baby HSA. He will need to find a financial institution which offers HSAs. He can contribute up to $1,000 to his Baby HSA for 2024. Even better, Steven and Holly will get a $1,000 tax deduction on their 2024 tax return which lowers their adjusted gross income.
Note that Steven’s Baby HSA cannot just be simply added to Holly’s HSA. Each of them have their own limits, and an HSA is an account in the name of a single owner (the same as an IRA). Thus, Steven will need to reach out to a financial institution to establish his own HSA.
Benefits of the Baby HSA
Yes, a $1,000 tax deduction is nice, but it is not life changing. Let’s not pooh-pooh it too quickly, however. Steven might qualify for 10 years of that $1,000 Baby HSA, which is $10,000 of tax deductions. Second, Steven and Holly get this deduction against adjusted gross income, which means that they won’t have to claim itemized deductions to obtain it.
Third, most tax deductions require giving up money to get a tax benefit. Often we think about business deductions, charitable contributions, and home mortgage interest. It’s great to take tax deductions for those, but you are giving up the money. The deduction for a Baby HSA contribution is simply moving money from a taxable account to an HSA: it’s still your money!
Last, an HSA deduction/exclusion is better than a deduction/exclusion for a traditional 401(k) contribution. In exchange for the upfront tax benefit, the traditional 401(k) will be fully taxable when withdrawn later on. Not so with the HSA. As long as the HSA is used to pay qualified medical expenses and/or to reimburse PUQME, the money comes out tax-free. No wonder I’m so fond of HSAs!
One additional benefit for retirees is the $1,000 deducted for a Baby HSA is $1,000 more of Roth conversions that can be slotted in at a low tax rate. The HSA deduction also lowers both adjusted gross income and “modified adjusted gross income” for Premium Tax Credit purposes, making it valuable for early retiree tax planning.
One Spouse Under Age 55
What happens if one of the spouses is under age 55? Here’s an example:
Example 3: Steven (age 56) and Holly (age 52) are married and covered by a family high deductible health plan provided by Holly’s employer for all of 2024. Thus, Holly has an HSA contribution limit of $8,300. Steven has an HSA contribution limit of $9,300, computed as a $8,300 normal contribution limit plus a $1,000 catch-up contribution limit. Holly maxes out her 2024 HSA ($8,300) through payroll withholding. When looking at Steven’s normal contribution limit, we must look at what Holly has contributed to her HSA for 2024. Since Holly maxed out her HSA, Steven’s normal contribution limit is $0. However, Steven’s catch-up contribution limit is still $1,000, since it is not reduced for contributions Holly made to her HSA.
Because Steven was 55 or older during the year, he still gets to contribute $1,000 to his Baby HSA. Holly’s age and contributions are irrelevant because the catch-up contributions of one spouse are not limited by the age and contributions of the other spouse.
Watch me discuss the Baby HSA on YouTube. Stay to the end to see me butcher some 80’s movie trivia.
Conclusion
The Baby HSA is a nice tax planning tactic for married individuals with a HDHP as their only medical insurance between turning age 55 and going on Medicare. While limited in scale, the Baby HSA can provide real tax benefits and later tax-free growth. Of note, some ACA plans qualify as HDHPs. This means that the Baby HSA opportunity will exist for some using ACA plans in early retirement, as well as those covered by a HDHP through an employer.
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This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.