Your company 401(k) is one of the best ways to save for a happy retirement. But 401(k)s are not the only game in town when it comes to retirement planning.
A health savings account (HSA) offers tax savings on medical expenses. But you can make investment decisions in your HSA. And turn it into an incredible retirement account.
An HSA is available to members of certain high-deductible health insurance plans. The government wants to make it easier for you to afford your future medical care. So, the HSA account provides tax deferred growth advantages for eligible expenses.
HSA funds never expire. Once they are in the account, they are yours to use whenever you need them in the future.
If you have the HSA option through your employer, you can elect to make a salary deferral to the account. And your employer may also contribute to your HSA. These contributions are exempt from payroll taxes as well as income tax. You can also contribute to an HSA, but it will be with funds you paid payroll taxes on.
Unlike a 401(k), you can access HSA funds immediately. If you use the funds for a qualified medical expense, you will not pay any taxes on the withdrawal. Otherwise, you will pay income tax. If you are younger than age 65, you will also owe a 20% penalty on a non-qualified withdrawal.
You can make the most of an HSA by using it as an investment account. Several providers allow you to invest in a wide variety of mutual funds. Like the menu of mutual funds available in your company 401(k).
You are not limited to the provider chosen by your company. Like your 401(k) provider Schwab, Fidelity, Vanguard, etc. Your HSA may be set up with a different provider. So, you can move your HSA funds whenever and to wherever you would like.
For 2022, the annual HSA contribution limits are $3,650 per year for an individual and $7,300 for a family. That includes any employer contribution. For comparison, employees can contribute up to $20,500 to a 401(k). And that amount is in addition to any employer-matching 401(k) contributions.
Find out if you are eligible to take part in an HSA this year. It makes sense for you to maximize your contribution. Invest in good mutual funds. And build up the account value for extra retirement income.
Ric Lager
Lager & Company, Inc.
