Older U.S. couples will be able contribute more than $10,000 annually toward tax-free health savings accounts.

Under guidance the IRS announced Tuesday that goes into effect next year, individuals can contribute as much as $4,150 to an HSA each year, a 7.8% increase. Families can set aside up to $8,300, up 7.1%, according to the new rules.

The amount individuals and couples who are 55 and older and not yet on Medicare can contribute to an HSA will climb to $5,150 and $10,300, respectively. That includes the $1,000 catch-up contribution they are already allowed to set aside in an HSA each year.

The large annual cost-of-living adjustment was expected given rising inflation, according to Kevin Robertson, senior vice president and chief revenue officer at HSA Bank. 

But he said the ability of older couples to contribute more than $10,000 and older individuals more than $5,000 helps establish an important psychological precedent.

‘It just sounds like a lot of money,’ he said. ‘It will catch people’s attention, and more will say they now need to look at an HSA contribution.’

HSAs are touted as a way to grow and set aside money for medical expenses tax-free. As the Society for Human Resource Management observed: ‘Contributions are made pretax, the money in the accounts grows tax free and withdrawals for qualified medical expenses are tax free.’

The average HSA created in 2005 has now accumulated more than $50,000 in investments and deposits, according to data from Devenir, an independent investment adviser and consultant in the HSA industry.

That’s already about one-sixth of the approximately $315,000 that Fidelity’s Retiree Health Care Cost Estimate calculates will be cumulatively spent by retirees on medical expenses.

‘The vast majority of people are not maxing out their contributions each year,’ Robertson said. The new contribution limits ‘will allow people to think about their needs … and get people more engaged.’