IRS increases 2021 HSA limits

Employees will be able to sock away some extra money into their health savings accounts next year.

The annual limit on deductible contributions to an HSA will jump by $50 for individuals and $100 for families next year, the IRS announced.

In 2021, the annual HSA contribution limit will rise to $3,600 for individuals in a high-deductible plan, the IRS said. That’s up from $3,550 in 2020.

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Those with family plans will be able to stash up to $7,200 in 2021–up from $7,100 in 2020. Account holders who are older than 55 can save an extra $1,000 annually as a catch-up contribution.

The minimum deductible for a qualifying high-deductible health plan, however, will remain unchanged and stay at $1,400 for self-only coverage and $2,800 for family coverage.

HSA enrollment continues to grow, especially as employees look at the accounts as a way to save for medical expenses in retirement. More employers also are offering contributions to employees’ accounts. Health savings accounts jumped to almost $66 billion in assets held in over 28 million accounts in 2019, according to research firm Devenir. That’s a year-over-year increase of 23% for assets and 13% for health savings accounts for the period ended Dec. 31. On average, investment account holders hold a $16,012 total balance.

Proponents say HSAs benefit employees and employers alike. For employees, HSAs provide “tremendous opportunity to maximize their savings dollars and help them stretch further–which will only become more important as healthcare costs continue to rise,” Begonya Klumb, head of HSAs at Fidelity Investments, recently told HRE. Employees also benefit from tax advantages and as a way to save for healthcare costs in retirement.

Employers who not only offer HSAs, but contribute to them, see even more benefits, including helping employees drive the right behaviors and form the right habits, Klumb says. “Looking at our book of business, we see [employer HSA contributions] as one of the primary factors [that leads] employees to adopt the high-deductible health plan and open the HSA account.”

HSA contribution limits are updated annually to reflect cost-of-living adjustments. The increases are detailed in IRS Revenue Procedure 2020-32 and take effect in January.