Increased 2025 HSA and HDHP Limits

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Increased 2025 HSA and HDHP Limits

Employees will be able to save more in their Health Savings Accounts (HSAs) next year due to rising inflation.

The IRS announced on May 9, 2024 that the annual contribution limit for HSAs in 2025 will increase to $4,300 for individuals. This represents a 3.6 percent rise from the 2024 limit of $4,150. For those with family coverage, the limit will rise to $8,550, marking a 3 percent increase from the 2024 limit of $8,300. This increase is notably smaller than the nearly 7 percent jump from 2023 to 2024.

The IRS still needs to release the 2025 catch-up contribution amount for those aged 55 and older, which remains at $1,000 for 2024, unchanged from 2023.

For 2025, a high-deductible health plan (HDHP) will require a minimum deductible of $1,650 for individual coverage, up from $1,600 in 2024, and $3,300 for family coverage, up from $3,200. Additionally, the maximum annual out-of-pocket expenses (including deductibles and copayments but excluding premiums) will increase to $8,300 for individual coverage (up from $8,050) and $16,600 for family coverage (up from $16,100).

The IRS also announced that the limit for accepted-benefit Health Reimbursement Arrangements (HRAs) will be $2,150 in 2025, up from $2,100.

Many industry experts highly recommend HSAs as an effective way for employees to save for medical expenses, even into retirement, due to their triple tax advantages: pretax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

The new IRS limits come as HSA enrollment rises and more employers contribute to their employees' accounts. According to a report by Devenir Group, an HSA research and investment consulting firm, HSA assets reached a record high in 2023, surging to $123.3 billion, up nearly 19 percent from the previous record of $104 billion in 2022.

An Employee Benefit Research Institute report found that employer contributions positively impact employees' HSA success, leading to higher balances and a greater likelihood of investing.

The IRS releases HSA annual limits every April or May, ahead of other limits, such as those for flexible spending accounts and 401(k) contributions, allowing employers and HSA administrators ample time to adjust their systems. Employers often promote HSAs and encourage increased contributions during open enrollment, but HR and benefits leaders should consider starting these discussions early.