4 Big Reasons to Use an HSA for Retirement Planning
March 3, 2017
HSA Contributions Aren’t Taxed
If you have a traditional savings account and deposit money into it after you get a paycheck each month, the money you’re putting in is already taxed. But when you contribute to a health savings account, the dollars you contribute aren’t taxed. Without having to pay taxes on the money you put in, you’re able to get more from your contributions.
Money for Eligible Expenses Is There If You Need It Before Retirement
Because an HSA is a savings account, your dollars continue to build up year after year. And unlike a traditional IRA or 401k, because your money can be used for eligible health care-related expenses, it’s still there whenever you need it. If you build up and invest your health savings balance but find you need to pull money out to pay for an unexpected health expense, that’s what it’s there for – and you won’t be penalized to use it for eligible expenses.
Withdrawals from an HSA after 65 Aren’t Penalized
While the money you take out of your HSA before age 65 has to be for an eligible expense to avoid a penalty, the rules change once you hit 65. If you take money out of your HSA after 65 for non-eligible expenses, you’ll still have to pay taxes on the withdrawal but won’t owe the 20% penalty. This makes planning for using an HSA after 65 a smart way to save for the future.
You Can Contribute More After Age 55
While the IRS sets strict contribution limits for HSAs, there’s a bit more wiggle room once you turn 55. At age 55 and up, you can make a catch-up contribution, up to $1,000/year. This allows you to grow your HSA balance even faster as you near retirement.
If you’re looking to get more information about the benefits of a health savings account and how it could work for you, take a look at our other related blogs.