N—Health Savings Accounts

Offering an attractive means of funding future health care costs, a health savings account (HSA) can be established by eligible individuals covered by a high deductible health plan (HDHP), provided they are not claimed as a dependent on another person’s income tax return and are not entitled to benefits under Medicare (i.e., have not reached age 65). The 2025 required HDHP must provide for a minimum annual deductible of at least $1,650 for individual coverage and $3,300 for family coverage; and maximum annual out-of-pocket expenses must be limited to $8,300 for individual coverage and $16,600 for family coverage (Rev. Proc. 2024-25). As an exception to these deductibles, preventive care services may be covered on a first-dollar basis.

The “preventive care” safe harbor allows HDHP coverage for items such as periodic physical exams, routine prenatal and well-child care, immunizations, tobacco cessation programs, obesity weight-loss programs, and a long list of health screening services that includes, among others, mammograms and PSA tests (i.e., these services can be provided without regard to the deductibles). If prescription drug coverage provides a benefit before satisfying the required deductible it would prevent tax-deductible contributions to a HSA. Permitted is insurance for a specific disease or illness, accident and disability insurance, and coverage for dental care and vision care. In sum, only preventive care services, permitted insurance, and permitted coverages are allowed in conjunction with a HDHP.

Annual contributions to the HSA are limited to a maximum of $4,300 for an individual, or $8,550 for a family (as adjusted in 2025 for inflation). Account holders and covered spouses, aged 55 and over, may each make additional contributions of $1,000 in 2025. Both the account holders and their employers can make contributions, but total contributions cannot exceed these annual limits. A participant in a health reimbursement arrangement (HRA), or a health flexible spending account (FSA), may, one time per arrangement, make an employer-to-trustee transfer to an HSA. This transfer will be treated as a rollover contribution to the HSA (i.e., it will not count toward the annual HSA contribution limit). In addition, individuals who own either a traditional or a Roth IRA may make a one-time trustee-to-trustee transfer from their IRA to a HSA (referred to as an “IRA-HSA rollover”). This transfer will not be included in the individual’s income, nor will it be subject to the 10-percent penalty tax for premature withdrawals. However, the amount cannot exceed the individual’s maximum HSA contribution
limit for the year (in 2025, $4,300 for individuals and $8,550 for families). There is also an additional $1,000 per year contribution allowable for individuals who attain age 55 before the close of the taxable year.