Monday, January 19, 2015

Health Savings Account for Retirement

Happy Retirement
A Health Savings Account (HSA) is not only a great way to pay for medical expenses not covered by insurance, it is also the best retirement investment available.  None of the other traditional investment vehicles, 401k, IRA or Roth IRA, offer a triple tax advantage.

Not only are contributions to a HSAs tax deductible for everybody, not just for people below a certain income level. Withdrawals as well as earnings are also tax free as long as you use the funds for qualified medical expenses.

401k and traditional IRAs may escape taxation at the time of contribution, but distributions of principal as well as earnings are always subject to income tax.  On Roth IRAs, it is the reverse, you pay tax on contributions but not on distributions.  The only time HSA distributions are taxable is if you use it for things other than medical expenses or if you leave any of it to anyone other than your spouse.

If you are healthy most of your life, there is likely to be plenty of medical expenses in retirement such as Medicare premiums, long-term care or alternative treatments.  HSAs can be used for all of these things without a tax penalty.

So how do you get one of those?  The catch is that you have to have a high-deductible health plan to qualify.  There are plenty of plans with high deductibles, but that alone does not necessarily guarantee that the plan qualifies.  You need to study the fine print.  Get IRS Publication 969 for details.

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