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An account that can keep your retirement savings healthy

Using your health savings account just to cover current medical expenses could be short-sighted.

HSAs are increasingly common as employers introduce high-deductible health plans. President-elect Donald Trump and Republican lawmakers have also proposed changes that could expand access to these accounts.

"They're a great tool to cut taxes and put money away for health care," said certified financial planner Carolyn McClanahan, director of financial planning for Life Planning Partners in Jacksonville, Florida.

HSA users earn a triple tax benefit, she said. Contributions are either pretax or tax deductible.


Unlike flexible spending accounts for health care, HSA balances can be carried over from year to year — and that money can be invested and grows tax-free, said Jeff Young, senior vice president for WEX Health, a software firm that administers HSAs for banks, insurers and other providers.

"It's great for the short term and the long term," he said.

Withdrawals aren't taxed as long as you use them for qualified medical expenses. Even if you're healthy, those can be a big bill in retirement: A 65-year-old couple who retired in 2016 could expect to spend $260,000 to cover health care costs, according to an August report from Fidelity.

But HSAs require a high-deductible health plan, which can make it difficult to cover your current health costs and still have money left in the account to grow for retirement needs, McClanahan said. In 2015, only 6 percent of HSAs had an investment component, according to a 2016 briefing from the Employee Benefit Research Institute.

"The thing with HSAs is, the people who can use them to save for retirement are the people who have the money to pay for their health expenses directly," she said.