Think retirement savings, and financial products such as 401(k) plans, individual retirement accounts, pensions and CDs likely come to mind. But certified financial planner Sophia Bera, founder of financial advisory firm Gen Y Planning, points out that workers can sock away savings for their later years in an unexpected way — with, of all things, a health savings account.
HSAs are not technically a retirement account; they exist mainly to help consumers with high-deductible health-care plans save money for out-of-pocket medical expenses. But many advisors are now touting these plans as one of the best ways to save for retirement, thanks to what Bera terms "a triple tax benefit."
How so? First, HSA contributions are tax deductible. Second, money saved in an HSA — up to $3,400 per year for people with an individual health plan and $6,750 for those with a family plan — can grow tax-deferred.
This is especially advantageous for younger savers with fewer likely medical expenses and, therefore, potential withdrawals, Bera explained. And lastly, account holders are able to withdraw HSA funds at any time for any such qualified medical costs.
HSAs can even be "hacked" to help out with finances well before retirement. Account holders can, for example, earn credit card rewards for out-of-pocket medical expenses by leaving HSA funds untouched — if enough available cash is on hand outside the plan — and paying those bills by credit card instead, thereby earning points.
An as-yet-untapped HSA can also work like an emergency fund for non-medical expenses. Be sure to fund your HSA every year and hang on to medical receipts. If, say, a $500 emergency crops up and you have receipts for $500 worth of non-reimbursed medical outlays handy, submit those receipts to get a $500 check from your HSA to pay for that unexpected non-medical event.
"My favorite way to use your HSA is like an IRA," Bera said. "Many people don't know you can actually invest a portion of the money in an IRA."
Inquire how much of your HSA savings must be kept in cash, and then put the rest into an investment account within the HSA. You can use those funds at any time for qualified medical costs or leave them to grow, untouched, in the investment account.
"Medical costs are the highest at or near retirement," said Bera. "So think about this being like an IRA for your health-care costs."