No matter your station in life, everyone’s goal should be to pay the IRS as little tax as possible. How you save for retirement goes a long way in achieving that.
Yet millions of Americans overlook a long-term savings tool loaded with tax benefits.
Fox Business explains the upsides of funding a health savings account:
Not everyone is eligible to contribute to a health savings account, or HSA. To qualify, you must be enrolled in a high-deductible health insurance plan, the definition of which changes from year to year. For 2020, you’ll need an individual deductible of $1,400, or a family level deductible of $2,800.
But assuming you do qualify, HSAs are unique in that unlike other retirement savings plans, they offer three distinct tax benefits:
- Contributions are made with pre-tax dollars
- Investment growth in these accounts is tax-free
- Withdrawals are tax-free provided they’re used to pay for qualified medical expenses
By contrast, IRAs and 401(k)s, which are commonly used to save for retirement, don’t offer the same number of tax benefits. With a traditional IRA or 401(k), your contributions go in pre-tax, and investment growth is tax-deferred, but withdrawals are subject to taxes. With a Roth IRA or 401(k), contributions are made with after-tax dollars, while investment gains and withdrawals are tax-free. These accounts are certainly worth funding, but it’s also worth incorporating an HSA into your retirement savings strategy. Though you can use an HSA outside of retirement, these accounts are best maximized when you contribute more than what you need in the near term, invest your money for added growth, and then carry those funds all the way into your senior years, when you’re likely to need that money the most.
Continue reading at Fox Business.