Turning 55 in 2024? Here's a Quick Way to Save Money for Healthcare

If you're in your 50s, ideally you're at a good place in your career and your personal finances. You're likely saving and investing to be on track for a comfortable retirement. The IRS wants to help you save even more money for the future. You might have heard of catchup contributions to 401(k) plans and other tax-advantaged retirement accounts. People aged 50 and over are allowed to put an extra $7,500 per year into their 401(k), or an extra $1,000 per year into a traditional IRA or Roth IRA.

But did you know: there are also catchup contributions for health savings accounts (HSAs)? That's right: If you are age 55 or older, and you have a qualifying high-deductible health plan (HDHP), you can use a health savings account as a tax-deductible way to save extra money for your future healthcare costs -- or for your future life in retirement. You can put an extra $1,000 per year into your HSA as a catchup contribution, and get a bigger tax break on your 2024 taxes.

Let's look at how this HSA catchup contribution works, and how it can help you have a happier 55th birthday in 2024.

How to get a health savings account (HSA)

Not everyone can get a health savings account -- it depends on what kind of health insurance you have. To use this flexible, tax-advantaged account, you need to have a high-deductible health plan (HDHP), and not every health insurance plan qualifies. According to IRS rules for 2024, an HSA-eligible high-deductible health plan must have:

• Self-only coverage: annual deductible of at least $1,600, and annual out-of-pocket expenses of no more than $8,050
• Family coverage: annual deductible of at least $3,200, and annual out-of-pocket expenses of no more than $16,100

Just because your health insurance has a deductible doesn't mean you can use an HSA. If your deductible is too low, or your plan's maximum out-of-pocket costs are too high, you won't be eligible for an HSA and its tax benefits. During your benefits open enrollment period at work, you should be able to find out whether your health insurance plan qualifies for an HSA. If you get health insurance from HealthCare.gov, you can search for HSA-eligible plans using an on-page filter.

How much can you contribute to a health savings account?

Once you have an HSA-eligible health insurance plan, it's time to start maximizing your tax benefits. The tax deduction you can get from an HSA depends on whether you have insurance coverage for just yourself, or for your spouse/family. According to IRS rules, here are the HSA contribution limits for 2024:

• Self-only coverage: $4,150
• Family coverage: $8,300

But wait, there's more! Those limits only apply to people under the age of 55. Once you reach your 55th birthday, you can put an extra $1,000 (or more) into your HSA and get an extra tax deduction.

HSA catchup contributions for age 55 and older: How they work

Many people might not know about this extra tax benefit, but people aged 55 and up can make an extra $1,000 per year catchup contribution to their HSAs. For 2024, that means a single 55-year-old can put a total of $5,150 into their HSA.

And married couples with an HSA can get an extra boost. Married couples who are both age 55 and older, and who have an HSA with family health insurance coverage, can both make catchup contributions of an extra $1,000 into their HSA. That means a married couple could save a total of $10,300 in their HSA for 2024.

This catchup contribution is a wonderful tax benefit, because it lets you save an extra $1,000 per person for healthcare (or future retirement), while reducing your taxable income for 2024.

How people age 55 and older can save money on taxes with HSAs

The health savings account is an especially valuable tax deduction, because it's an "above the line" deduction. This means that your HSA money gets deducted from your income before you take the standard deduction (or itemized deductions). Above the line deductions are considered "Holy Grail" tax deductions, because they reduce your adjusted gross income (AGI). Other above the line deductions include contributions to a traditional IRA, and some education expenses.

Another advantage of the health savings account is that there are no income limits. Even if you're a high earner in the top tax bracket, you can still use an HSA to get a tax deduction for every dollar you put in.

For example, let's say that Bob and Joan are a married couple, ages 56 and 55, with an HSA and a combined taxable income of $150,000, which puts them in the 22% tax bracket for 2024. Bob and Joan can put this much into their HSA for 2024:

• $8,300: 2024 maximum contribution
• $1,000: Bob's catchup contribution
• $1,000: Joan's catchup contribution

Total: $10,300 for 2024 HSA contributions

If Bob and Joan put the maximum $10,300 into their HSA in 2024, since they're in the 22% tax bracket, they will reduce their 2024 income taxes by about $2,266. Each $1,000 catchup contribution saved them $220 on taxes.

Bottom line: If you're not already maxing out your health savings account contributions, start in 2024 -- especially if you're age 55 and older. People in this age group can save an extra $1,000 per year in an HSA. Get great tax benefits and save more money for healthcare.