When the topic of how to best save for retirement comes up, the conversation likely turns to widely used accounts like IRAs and 401(k)s.
While much of what drives that thinking still remains true, many investors are missing out on the benefits of tax-advantaged HSAs. HSAs are triple-tax-advantaged, allowing you to put money in pre-tax, grow it tax-deferred and take it out tax-free — as long as the withdrawal is used for qualified healthcare expenses.*
At its core, an HSA allows the account owner to contribute pre-tax funds that continue to grow untaxed as long as they remain in the account. What’s more, funds withdrawn are not taxed if they are used to pay for qualified medical expenses, unlike withdrawals from a 401(k) or traditional IRA on which you pay income tax.
HSA eligibility: In order to qualify for an HSA, you must have a high-deductible health plan, which currently means a minimum annual deductible of $1,400 for individual coverage and $2,800 for families.2
HSAs function like other retirement accounts in the sense that contributions and earnings can accumulate in the account from year to year and the funds within can be invested long-term. But they're unique for the tax-free withdrawals mentioned above, they don’t require account holders to start withdrawing funds at a certain age, and they don’t adhere to the “use-it-or-lose-it model” of most flexible spending accounts.3
If you enroll in Medicare at age 65, you are no longer able to make contributions, but you can still withdraw HSA funds tax-free in order to pay for your Medicare premiums and expenses.
Starting early in your career, making contributions to an HSA each year allows the account to build up until you retire. You can make withdrawals tax-free from the HSA account at any time to cover out-of-pocket healthcare expenses, freeing up other savings that can now be used toward retirement spending.
Learn more about our approach to retirement savings and income planning.