Treat your HSA like an extra retirement account

by Ryan Lasker | Originally posted on Money Scoop

I often get the question from readers: I’ve maxed out my 401(k) and IRA. How do I continue saving for retirement? The smart move is to think of your health savings account (HSA) as an extra retirement account.

If you’re among roughly half of US workers with a High-Deductible Health Plan (HDHP), you can use your HSA to stash up to $3,600—or up to $7,200 for a family account—of your pretax income each year, and you can add another $1,000 if you’re 55+ years old. Just like with an IRA or 401(k), the money you place here can be invested in stocks, bonds, mutual funds, and ETFs.

HSAs come with a triple-tax benefit: Money going into the account isn’t taxed, earnings grow tax-free, and withdrawals to cover qualified medical expenses aren’t taxed.

Here’s the gag: You can start using HSA funds for any purpose, without penalty, once you turn 65, unlike penalty-free 401k(s) and IRAs distributions, which start at 59 ½. HSA funds can still be withdrawn tax-free for qualified healthcare expenses at any time. But if you use the $$$ for anything else at 65+, HSA funds are taxed like all traditional 401(k) and IRA distributions.

Don’t get HSAs confused with flexible spending accounts, a similar-but-inferior tax-advantaged account to help those without HDHPs cover their out-of-pocket health costs.