HSAs are for More Than Only Health Savings

By Kevin Panitch | Originally posted on Business Insider

When you think about saving and investing for your retirement, what comes to mind?

You probably think about your workplace 401(k), and maybe you even consider an Individual Retirement Account.

While those are great places to start, there is actually a superior type of investment account (in my opinion) for retirement. It's called a health savings account, or HSA for short.

I started looking into my HSA options just a few years ago, and was surprised to learn that an HSA is actually a great way to take your retirement saving to the next level.

What is a health savings account (HSA)?

The IRS defines a health savings account as "a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA."

In plain English, an HSA is a tax-advantaged account designed to help you cover medical expenses you may incur.

To be eligible for an HSA, you must be enrolled in a high-deductible healthcare plan, which in 2020 involves having a deductible between $1,400 and $6,900 (if you are enrolled in a self-only plan).

There are a few other key health savings account rules to be aware of, most notably:

  1. You can make tax-free contributions

  2. You can make tax-free withdrawals to pay for qualified medical expenses

  3. Your money continues to roll over year after year if you don't spend it

  4. There are annual contribution limits ($3,550 for a self-only plan in 2020)

  5. You can invest funds once you reach a certain threshold (varies by plan provider) and that money grows tax-free

I know, these "rules" actually sound more like perks!

Which is why not fully utilizing the account was one of my biggest retirement mistakes that I corrected a couple of years ago.

Especially considering "rule" number five above — you can invest this money.

My retirement mistake — not utilizing my HSA

At its core, my biggest mistake was not maximizing my HSA. And what was the reason I didn't take full advantage of it?

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