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Use your HSA to Save for Retirement

[/fusion_text][fusion_text]Do you have a high deductible health insurance plan? If so, I have a retirement savings tool that can be even better than your 401k. You might already have one and just not realize how great it is. That was the case for me until Conner Kolodge, an investment advisor at Adam Smith Advisors, brought it to my attention (and wore me down with compelling arguments about how to use it differently).

What is this great thing I’m talking about? It’s your Health Savings Account (HSA). I have always known HSAs are wonderful. I get a tax deduction for contributing to it and I get to take the money out tax free when I spend it on approved medical expenses. Thankfully any money I don’t use one year carries over to the following year. I don’t lose it.

Most people who contribute to HSAs only put in what they will need for the next year and spend it as they go. That’s exactly how I was using it. (Warning, we’re about to get nerdy here. The following conversation is not suitable for happy hour, but could save you a lot of money in taxes.)

The breakthrough comes when you compare the tax characteristics of an HSA with a 401k. In a traditional 401k you get a tax deduction when you contribute to it, but you pay taxes when you take it out.  With a Roth 401k you pay taxes on the front end and then never again. When you use an HSA correctly, you never pay taxes on that money.

So what if we max out our HSA contributions each year and use other money to pay for our medical expenses? We could grow a new pot of money tax-free that we build year after year. Once your balance gets big enough you can invest it in stock funds for long-term growth.

Again, with HSAs it’s a tax deduction on the way in and tax free on the way out when used for medical expenses. I hear we are all going to have a lot of medical expenses in retirement. So having a big pot of money to spend on it isn’t a bad thing.

There’s the big idea. Let me know you have questions on the details.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.