The Internal Revenue Service has released the inflation-adjusted deduction limitations for annual contributions to health savings accounts in 2016.

Revenue Procedure 2015-30 provides the 2016 inflation-adjusted HSA deduction limits, which are updated annually to reflect cost-of-living adjustments.

For calendar year 2016, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,350. For calendar year 2016, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $6,750.

Also for 2016, a high deductible health plan is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage, or $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles, co-payments and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage.

By Zahoor Elahi, Optum

You know that the health savings account (HSA) that accompanies your employees’ high deductible health plan can help cover qualified out-of-pocket medical costs. But did you know that the HSA also can be used as a retirement vehicle? It’s true. In fact, according to the Employee Benefit Research Institute a person contributing for 40 years to an HSA could save up to $360,000 if the rate of return was 2.5 percent, $600,000 if the rate of return was 5 percent, and nearly $1.1 million if the rate of return was 7.5 percent, and if there were no withdrawals.

After age 65, employees can access the account for non-medical expenses without penalty. The withdrawals will be taxed as income (like a traditional IRA).

Granted, for most employees not withdrawing from an HSA for 40 years is unrealistic. But considering that IRS contribution limits in 2016 are $3,350 for individuals and $6,750 for families, it’s conceivable that employees can let a considerable amount of money in the account roll over into the next year, the following year and so on. These funds get a triple tax benefit:

1. The money contributed reduces taxable income
2. It grows tax-free
3. Withdrawals are tax-free if used for qualified health expenses

By choosing to pay health care costs with other savings, the HSA continues to grow and becomes a longer-term savings vehicle. Employees can further grow savings for retirement by investing the savings after the account hits a certain threshold, typically $2,000. Investment options vary based on the HSA. Optum Bank^sm, for example, offers low expense and no load, non-proprietary mutual funds. (Investments are not FDIC insured, not guaranteed by Optum Bank and may lose value.)

Every employee is different with a unique individual or family experience. The beauty of the health savings account is that it allows employees to take a personalized approach to both health and savings, so they can make decisions to enrich their lives today and in retirement. For more information on HSA investment services, visit OptumBank.com.

Try our Health Savings checkup tool to see how much money you will need in retirement to pay for health care.

Zahoor Elahi is the Senior Vice President, Financial Services, for Optum.