Annual HSA Contribution Limits Increase for 2025

In our latest Bottom Line Thursday conversation with Brad Johnson, we discuss the recently released IRS updates for Health Savings Account (HSA) contribution limits in 2025. The IRS has announced these limits well in advance, allowing employers and employees to plan accordingly.

Contribution Limits

As expected, the contribution limits for HSAs have increased due to inflation. For the year 2025, individuals with single coverage can contribute up to $4,300, while those with family coverage can contribute up to $8,550. This represents an increase of $150 for singles and $250 for families compared to the previous year. However, the catch-up contribution for individuals aged 55 and over remains unchanged at $1,000, as this is a statutory limit set by Congress.

Deductible and Out-of-Pocket Maximums

The minimum deductibles for high deductible health plans (HDHPs) have also increased. For self-only coverage, the minimum deductible is now $1,650, and for family coverage, it is $3,300. This change may pose challenges for some plans, as they will need to adjust their benefits to remain compliant.

Out-of-pocket maximums have also been updated, with the limit for self-only coverage set at $8,300 and $16,600 for family coverage. While not many plans are likely to reach these limits, some employers may choose to partially self-fund their plans to lower costs.

Impact on Employers and Employees

As a result of these changes, employers offering HSA-compatible plans will need to review and adjust their plan designs accordingly. Many carriers are expected to proportionally increase their plan deductibles to align with the new minimums, affecting not just the lowest deductible plans but also those with higher deductibles.

Maximizing HSA Benefits

Despite the challenges posed by these changes, the continued increase in HSA contribution limits presents an opportunity for employees to save more for their healthcare expenses and retirement. Employers are increasingly considering single-source HSA administration to streamline the process and provide their employees with more investment options. Some institutions allow account holders to invest their HSA funds in the market or high-interest CDs once their balance reaches a certain threshold, ensuring liquidity for immediate healthcare needs while also promoting long-term savings.

Looking Ahead

With the IRS releasing these limits well in advance, employers and employees have ample time to plan for the changes coming in 2025. By understanding the new contribution limits, deductibles, and out-of-pocket maximums, both parties can make informed decisions about their healthcare coverage and savings strategies, ultimately maximizing the benefits offered by HSAs.