Health savings accounts (HSAs) offer workers an ideal opportunity to save for planned medical expenses, cover unexpected health issues, and reduce their taxable income all at the same time. While younger workers are limited to the standard maximum contribution allowed by the IRS, workers over the age of 55 are able to make catch-up contributions to help them prepare for the inevitable, increasing medical costs that come with old age. Thanks to this allowance, HSAs continue to provide significant value for those approaching the end of the working stage of their lives. Understanding how to capitalize on catch-up contributions can help better prepare your older employees to handle their medical expenses in retirement.

When can my employees start making catch-up contributions?

Account holders can begin making catch-up contributions (up to the annual limit) at any time during the year in which they turn 55. Catch-up contributions may be made every year until the account holder enrolls in Medicare, at which time they become ineligible to contribute to an HSA.

Does the catch-up contribution limit change?

Yes. The IRS issues regulations on HSA catch-up contributions each year. While the amounts don’t always change, your plan administrator will monitor the guidance from the IRS and issue notices to you and your employees to help them make the most of their HSA.

Currently, the catch-up contribution limit for those over 55 is $1,000 and the IRS has issued guidance that the limit will remain the same in 2020.

Can my spouse also make a catch-up contribution to my plan?

No. Since each HSA account is individually owned by the employee, only the employee can make catch-up contributions to their plan. If they have an HSA-qualifying health care plan, the employee’s spouse can open a separate HSA account and make their own contributions to that account, including catch-up contributions.

What is the benefit of catch-up contributions?

Catch-up contributions not only allow account holders to better prepare for health care costs that increase with age, but can also provide significant tax benefits. Since HSA contributions are made pre-tax, making catch-up contributions each year after turning 55 allows the account holder to further reduce their taxable income. For example, if a 55-year-old account holder makes $50,000 and makes the maximum family contribution of $7,000 (for 2019) plus their $1,000 catch-up contribution, the account holder’s taxable income is effectively reduced to $42,000.

Plan administration you can trust

Helping your employees make the most of their flexible benefits is essential to getting the best return on your investment in those benefits. Sheakley’s Flexible Benefits experts provide the advice and support employers need to confidently select the right blend of plan options to meet the needs of their company and employees. In addition to comprehensive plan management, Sheakley’s team provides training and educational opportunities to help your management team and employees better understand and utilize their benefits.

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