Money in the HSA can be saved until retirement to cover qualified medical costs. This can make your retirement savings go farther. Remember the money comes out tax-free for qualified medical expenses. In addition, your contributions are made on a pre-tax basis (note some plans allow for after-tax contributions as well).
Beyond medical expenses, once you reach age 65 the money can withdrawn penalty-free for purposes other than paying for qualified medical expenses, though the withdrawals will be taxed at ordinary income rates like a tradition IRA account.
HSAs are not subject to required minimum distributions at age 70 ½, allowing the HSA to continue to grow tax-free. If a spouse is named as the beneficiary of the account, he or she can inherit the money tax-free. Non-spousal beneficiaries will be taxed on the account’s fair market value.
Your HSA can be another leg on the retirement planning stool.
The Bottom Line
With the cost of healthcare in retirement continuing to increase, the health savings account is increasingly being viewed as an additional retirement account. If you have access to one, consider funding an HSA account to help supplement your other retirement savings efforts.
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This article was republished by Chicago Financial Advisor.