There is a type of account that few people use to build their retirement fund. And there are a lot of benefits that come with it, so in case you were wondering, here’s everything you need to know it.
Have you ever heard about a Health Savings Account? This is one of the best accounts to save for retirement, and yet one of the less popular. According to a recent survey by TD Ameritrade, only 8% of people in their 60s and 4% of people in their 70s are currently using HSAs. Things don’t change much if you look at people in their 40s or 50s, where that number jumps to 16% and 15% respectively.
What is an HSA account?
It is true that Health Savings Account are not strictly retirement accounts, and they can actually be used for many purposes —if you qualify for one. The main condition to qualify is having a high-deductible health insurance plan.
What are the benefits of having an HSA?
The main perk of a Health Savings Account is its unique triple tax advantage:
1) You get a tax deduction for each tax year for which you contribute to your HSA.
2) Your money will grow tax-free.
3) You can withdraw your money tax-free if you use it for qualified health expenses.
So, basically, if you use your HSA money to pay for medical expenses, it will never be taxed. As health care is one of the biggest expenses during retirement, HSAs can save you a lot (A LOT) of money on medical bills throughout your golden years.
But even if you are lucky enough to not incur huge medical bills, you can open an HSA account as a kind of alternative to IRA accounts.
Once you turn 65, you can withdraw your HSA money for any reason, not just health-related. In that case, you will pay taxes just as you would with any traditional IRA, but you won’t pay penalties.