If you’re looking for a great way to save money, you might consider an IRA or a 401(k), but there’s an even better way to do it. It’s called a Health Savings Account and it has one of the better returns on the market today.
Imagine being able to put up money towards a high-deductible plan, and over time, that investment grows 100% tax-free. When you’re ready to pull out the investment, it’s not taxed then either. This is a great, strategic way to save a lot of money without tons of fees and taxes added on.
Health Savings Account Good for Retirement?
According to Christine Benz, the personal finance director at Morningstar, the answer is a resounding yes!
“The best use for an HSA is the healthy, wealthy person who leaves their Health Savings Account untouched until retirement,” Benz said. “They’re the ones who will benefit the most tax-wise.”
For this to work, you should have the money to save, meaning that you should put in your full contribution each year. That’s about $3,450 per year as an individual. For the rest of your family, the cost is about double that.
Health Savings Account or Retirement Fund?
The first decision you’ll have to make is how you plan on using this fund. Its success as an investment hinges on you being able to pay for most of your health care out of pocket so you’re not dipping into your Health Savings Account funds. If you put up that money only to use it at some point that same year, it’s not going to work out.
At that point, it becomes a simple spending account. You put money in, you take it out as you need it. A retirement fund should be a place to stash away money and you leave it alone to accumulate interest. Once you’re 65, you can start pulling out the money for non-healthcare related expenses.
Do Your Research
When looking around for health savings accounts for retirement, it’s important to know what you’re looking for. Some of the options that exist today are limited in their scope and provide little benefit to you. Even if you already have a Health Savings Account set up and find a better one, you can switch accounts, providing a lifeline to those who feel caught in the wrong type of plan.
Even if you’ve already started saving into your IRA, the IRS has provisions to allow you to move your funds from that IRA into a Health Savings Account one time. This is a great way to pay off a large, immediate medical bill tax and interest-free.
If you put that bill on your credit cards or use a funding source your doctor provides, you’re going to pay a lot more in the long run. Converting your IRA into your Health Savings Account is a great way to cover the bill.
Of course, the best option is to not touch it, but having money in your Health Savings Account is a great way to have peace of mind that an emergency will be covered. If you’re healthy or can afford to pay for medical expenses out of pocket, that’s the best way to go to save your HSA as a retirement fund.