Most people are familiar with the 401k and IRA being used as a retirement savings vehicle.  And most people have heard of a health savings account (HSA).  But do you know how to save for retirement with an HSA?

Benefits

If you participate in a high-deductible health plan you can open an HSA.  This tax-advantaged account helps you pay for qualified medical expenses.  If you’re you’re 65 or older, it can also help with health insurance premiums, long-term care, and many other retirement expenses.  However, withdrawing money for something other than a qualified medical expense before turning 65 results in a tax penalty.

There are 3 tax benefits that make it a good way to save for retirement:

1. Like a 401k or traditional IRA, contributions to your HSA are tax deductible and your investment grows tax deferred.  The difference is that when you turn 65,  withdrawals for qualified medical expenses are tax-free.  (With the 401k and/or traditional IRA, you pay taxes on withdrawals).
2. Anyone can contribute to your HSA.  This includes you, your employer (if you have an HSA through your employer), your work, and any other eligible person.
3. Any balance not used by the end of the year , rolls over to the next year (unlike a flexible spending account).

Contributions

HSA contributions are tax-deductible until you sign up for Medicare, and there are contribution limits.  For 2021, the limit for an individual is $3,600 and $7,200 for a couple.  In addition, if you’re 55 or older, you can make catch-up contributions of $1,000 per year.  If your spouse is 55 or older and has their own HSA account, they’re also entitled to the yearly catch-up contribution.

Contributions limits are adjusted annually.  If you want to save for retirement with an HSA, it’s a good idea to verify current limits through the IRS.

Maximize Your Benefit

If you’re treating your HSA as an investment tool, don’t spend contributions while you’re working.  Think about your HSA the same way you think about your 401k or IRA; untouchable until retirement.  You aren’t required to take distributions from your HSA (neither before, nor after retirement), so you can take full advantage of those triple tax benefits.

Some HSA providers only let you put contributions in a savings plan while others allow you to invest contributions.  There are also differences in fees charged from one HSA plan to the next.  To maximize you benefit, shop around for a plan with high-quality, low-cost investment options.

Save For Retirement With An HSA

The choice to save for retirement with an HSA is often overlooked.  And while it may not be the best choice for everyone, the ability to save, invest, and take distributions without paying taxes make it an investment tool to consider.

If you have questions on how an HSA may be useful for you, just give us a call at 336-448-1086 or send us an email.