Most people have a high-deductible health insurance plan now through their employers. This can be frustrating for people that have large medical bills because of the high deductibles they have to pay, and can hurt employees that are trying maximize their retirement savings, but there are some upsides and ways to use your HSA for retirement.
You can contribute pre-tax dollars to your HSA account to “prepay” future medical bills and have them effectively be a tax deductible expense. If you have a family plan, you can contribute even more on an annual basis. Click here for current HSA contribution limits.
If you aren’t a person that spends a lot on medical expenses throughout the year, the HSA can grow like your 401k or IRA. Most HSA plans offer investment options similar to a 401k or like you would get with a Financial Planner.
The biggest upside though, once you turn 65, you can withdraw the funds for any reason without penalty! This means that your HSA contributions become triple-tax-free at this point! You get a deduction for contributing, tax free growth and tax free withdrawals!
If you think about it in this manner, if you don’t make enough to max out your 401k and your HSA, you may want to consider putting enough into your 401k to max out your employer match, then max out your HSA, then if you have some left over, put more in your 401k.
Talk to a Financial Planner about how to use your HSA for retirement!
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Ryan Oates, MBA, CFPA
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