HSA administrators, Clarity Benefit Solutions, emphasizes the importance of HSA accounts for retirement.
Traditionally, the 401(k) was thought to be the best way for someone to save for retirement. While the 401(k) is a valid way to save for retirement, there has been a recent push for the use of Health Savings Accounts (HSAs) to save for retirement. The following discusses the importance of utilizing HSAs for retirement savings.
The triple tax advantage of HSAs make them ideal for retirement savings. First, the funds are contributed from your payroll on a pre-tax basis, meaning it is not considered taxable income. This helps employees save even more over time. Next, the account balance grows tax-free. Any dividends or capital gains made are nontaxable, so employees can keep more of the money they earn. Finally, withdrawing money from the account is also tax free.
That final point is one of the key advantages of HSAs over 401(k)s or IRAs for retirement—on the latter two, employees must pay taxes on any money as soon as it is withdrawn, no matter what it is being used for. Also unlike a 401(k) or IRA, there is no requirement to begin withdrawing funds at a certain age. The only eligibility requirement is that individuals must be under the age of 65 and not eligible for Medicare. Otherwise, they can contribute or withdraw funds whenever is best for them.
To maximize an HSA to its full potential, it is important for employees to invest their funds wisely, the same way they would with any retirement savings plans. There are fewer restrictions as to where individuals can invest their funds than with a 401(k), but it is still important to do the proper research and make sure investments are made wisely.
HSAs have been widely overlooked as a retirement investment tool. However, their triple tax advantage and versatility for investment options make them a great choice for employees with a high deductible health plan who are looking to save for the future.