It is the time of year when many employers have their annual open enrollment, and most of us are asking ourselves “what should I do?” This question especially pops up when it comes to choosing how much we should contribute to a health savings account (HSA), flexible spending account (FSA) or 401(k). It is important to make well-informed decisions when it comes to your benefits.
The first step is to know how much you the IRS allows you to contribute, as the limits change each year.
1) Health Savings Accounts
The 2020 contribution limits for an HSA plan are $3,550 for individual coverage and $7,100 for family coverage. You must be enrolled in an HSA-qualified High-Deductible Health Plan to be eligible to open and contribute to an HSA. Also, it is important to remember that the contribution limit includes both employer and employee contributions. For Example: You are enrolled in individual coverage and your employer contributes $1,200 per year to your HSA; to stay within the limit set by the IRS, the most you can contribute is $2,350.
Source: IRS Notice 2019-25.
2) Flexible Spending Accounts
Flexible Spending Account (FSA) contribution limits are increasing from $2,700 to $2,750 in 2020. FSAs, like HSAs, allow employees to deduct pretax dollars from their paychecks to pay for eligible out-of-pocket health care expenses. Unlike with HSAs, you do not have to be enrolled in a High-Deductible Health Plan to contribute to an FSA. Also, participants typically must spend their annual contributions by the end of the year (extended by a 2 ½ month grace period if the plan allows) or remaining funds are forfeited.
Health FSA Limits
Source: IRS Notice 2019-44.
Annual 401(k) contribution limits are increasing, too. Please be sure contact your employer’s human resources officer for specific information regarding employer contributions and to learn more about how to make changes.
401(k) Plan Limits
Source: IRS Notice 2019-59.