2027 HSA limits rise to $4,500 individual, $9,000 family

The IRS raised health savings account contribution limits for tax year 2027 to $4,500 for individuals and $9,000 for families. Only people enrolled in high-deductible health plans are eligible to contribute to HSAs.

Flexible spending accounts remain available to a broader set of workers but allow limited carryovers; the FSA rollover is capped at $680 for the 2026-to-2027 plan year. A federal law enacted in July 2025 broadened HSA eligibility to include certain high-cost exchange-based plans, direct primary care arrangements and telehealth services.

Financial advisers say the higher HSA caps create an opening to encourage clients to invest HSA balances rather than keep all funds in cash. A June 2025 Employee Benefit Research Institute report found about 15% of HSA holders had invested funds. Many custodians require a minimum balance, typically $1,000 to $2,000, before offering investment options.

Filip Telibasa of Benzina Wealth in Sarasota, Florida, recommends investing the portion of an HSA balance that exceeds a client’s plan deductible so the account can grow while still covering potential out-of-pocket costs. Employer contributions often prompt account holders to consider investing, but some face practical hurdles such as complicated setup, narrow investment choices or a lack of awareness that investing is possible within HSAs.

Advisers highlight HSA rules that affect retirement use. Withdrawals used for qualified medical expenses are tax-free at any age. Withdrawals for nonmedical expenses before age 65 are subject to income tax and a 20% penalty. After age 65, nonmedical withdrawals are taxed as ordinary income but are not subject to the 20% penalty.

One common planning approach is to pay current medical costs out of pocket when feasible, leaving HSA assets invested to grow and cover future medical expenses or to provide an additional source of taxable income after 65. HSA distributions do not affect taxation of Social Security benefits and HSAs are not subject to required minimum distributions.

Advisers warn about timing and estate issues. People should stop HSA contributions before they first enroll in Medicare; continuing contributions after Medicare enrollment can trigger a 6% excise tax on excess contributions. Account owners should also address estate planning, since nonspouse heirs may face adverse tax consequences if an HSA passes through an estate without planning.

The accounts provide three tax benefits: contributions reduce taxable income, earnings grow tax-free and qualified medical withdrawals are tax-free. Advisers advise confirming HSA eligibility under a client’s health plan, keeping a short-term cash reserve to cover the deductible, reviewing available investment options at the HSA custodian and coordinating contribution timing with Medicare enrollment. With the 2027 limits rising, advisers plan to use the change as an occasion to review clients’ HSA strategies.