Money

Americans are using this 'loophole' to save more for retirement

When it comes to building your nest egg, you have more options than you may think.

One such savings vehicle is only getting more and more popular: a health savings account (HSA).

HSAs are designed for you to use to pay for qualifying healthcare expenses. You can contribute pre-tax money and use it towards medical costs whenever you want. There's no "use-it-or-lose-it" rule: Any unused funds will roll over year to year.

What's most appealing is that they offer "a triple tax benefit," certified financial planner Sophia Bera tells CNBC Make It. "The money is tax deductible when you put it in, it grows tax-deferred and you can take it out tax free if used for qualified medical expenses."

You can even use the funds for non-medical expenses after you reach age 65, though if you withdraw money for non-healthcare expenses before 65, you'll pay a 20 percent penalty. That's why HSAs can be an appealing retirement-savings tool.

"You can use the money similar to how you would with an IRA," certified financial planner Nick Holeman tells CNBC Make It. "You put money in pre-tax; there's an annual limit on how much you can contribute per year; and you can either use the money for medical expenses, or let it grow and invest tax-deferred, and then make withdrawals in retirement.

"It's kind of like this retirement loophole trick and can be a powerful strategy, if you have an HSA in the first place."

You can only contribute money to an HSA if you have a high-deductible health care plan (HDHP), one that offers a lower monthly health insurance premium and a high deductible. This year, that means you'll have to pay a minimum deductible of $1,300 ($2,600 for families). The maximum annual out-of-pocket costs for these plans are $6,550 ($13,100 for families).

HDHP's aren't for everyone, Holeman notes: "If you are on medications, have a chronic illness or if you're older — anything where you might be going to the doctor a lot — then having a high-deductible will probably be very expensive for you.

"Typically, it only makes sense if you're healthy and you don't use the doctor very often."

Before signing up for an HDHP, you'll want to sit down and ask yourself a few questions, says Holeman: "How often do you go to the doctor? Do you have a safety net that's large enough so that if you do need to pay the high-deductible, you can pay that out of pocket without having to eat rice and beans for a month?"

If an HDHP makes sense for you and you decide to open an HSA, the contribution limit is $3,400 per year if you're single and $6,750 per year if you have a family. If you're 55 or older, you can make an additional $1,000 "catch up" contribution.

"It's less money that you can put into that account [than other retirement savings vehicles]," says Holeman. "So this account alone is not going to be nearly enough for you to save for your retirement, but it can be a nice addition to your normal retirement savings."

More and more Americans are catching on to this loophole. As CNBC's Tom Anderson reported in 2016, people had opened 18.2 million HSAs as of June 2016, a 25 percent increase from the previous year.

And while the money invested in HSAs is a fraction of what is stashed in IRAs and 401(k) plans, those who are using HSAs to save for retirement are slowly building up sizable savings: The average account holder who uses an HSA as an investment option has a balance of $15,092.

If you're interested in diving in, read more about using HSAs as a retirement strategy.

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