Not your typical retirement account, a Health Savings Account allows you to set money aside to pay for qualifying medical expenses. Being able to contribute now will make retirement easier later. Good news: Contributions are tax-deductible AND never expire!
Here’s why you should consider an HSA.
A tax break today and save for your tomorrow.
Contributions to HSAs reduce yearly taxable income similarly to 401(k)s. In 2022, families can contribute $7300 into an HSA while individuals can contribute up to $3650. Those 55+ can contribute an extra $1000 to these.
However, to have a Health Savings Account you need to have a qualifying high-deductible health plan. Typically, this is $1400 for individuals or $2800 for families. Please note these vary by marketplace.
Even with the contribution limits a fraction of what 401(k) limits are, you are saving money today that will help aid in medical costs in your retirement. The saying does go, “slow and steady wins the race,” right?
Three cheers for tax-free withdrawals!
You read that right. You can withdraw tax-free for your medical expenses at any age. However, if you are planning to save this for your retirement, pulling from your HSA should be avoided.
Now, you may also use your HSA for nonmedical withdrawals, but you will have to pay income taxes and a penalty tax should you do so before age 65. The taxes are higher than if you pulled from your 401(k) early. Luckily, once you are 65, HSAs are tax-free medical withdrawals and mimic 401(k)s.
Zero required minimum distributions
Unlike 401(k)s and other retirement accounts like Roths, HSAs do not have RMDs. Without having to worry about this, you can leave your funds in the HSA for as long as you would like!
Want an HSA?
HSAs make great additions to retirement plans, and you can open one with banks or brokers. Once opened, the freedom an HSA offers is yours!