Health Savings Account: Good For Retirement?
Health savings accounts may be worth a closer look. Not only do they offer different features than flexible spending accounts (balances aren’t forfeited at year’s end, for instance), but the funds can grow tax-deferred and can be invested in a variety of stock investments. Here are three different explanations of HSA pros :
1: First, let’s look at the definition of a health savings account. It is an account used to save money for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment. Contributions can be made by both you and your employer; however, total contributions are limited annually. One benefit of an HSA is that it provides funds in the event of an unplanned medical expense. These accounts provide for triple tax savings: tax deductions when you contribute to your account; tax-free earning through investment; and tax-free withdrawals for qualified medical expenses. If you are 65 or older when you withdraw the funds for nonmedical reasons, you are still subject to income taxes, but not subject to the 10% penalty.
2: Funds distributed from an HSA are not taxed when used for qualified medical expenses, and unlike flexible spending accounts, they’re not forfeited if not used by the end of the year; unused funds remain available for use in retirement. Your HSA contributions won’t affect your IRA limits, so if you have a high-deductible health insurance policy, it’s another tax- deferred way to save for retirement. However, the real focus for these accounts is not retirement, but taking proactive steps to address our rising health-care crisis. By taking personal responsibility to save for future health-care expenses, adopting high-deductible health plans, and moving care away from third-party payment, we can take informed steps to help reduce these rising costs and increase the efficiency of the health-care system.
3: A health savings account can be described as a medical IRA. An HSA is paired with a high-deductible medical insurance plan and accepts tax-deductible contributions up to the medical plan’s annual deductible, not to exceed specified limits. The funds in the health savings account grow tax-deferred and can be invested in money market, bond or even stock investment vehicles. Because of the tax treatment and investment options available in many HSAs, theoretically they could be used as a vehicle to save for retirement. However, whether or not this is true for you will depend on your personal situation.
