HSA savers may be missing out on this great opportunity | personal finance

(Maurie Backman)

Medical care can be a significant expense, especially during retirement. Therefore, it is important to set aside money for it on a constant basis.

That’s where health savings accounts (HSA). With an HSA, you can contribute money in the short or long term. health care expenses. Unlike flexible spending accounts, which require you to spend your plan balance year after year, HSA funds have no expiration date. You can put money into an HSA at age 20 and carry that money into retirement, which is definitely worth doing, since medical bills are likely to be more of a burden in your old age than they are during your working years.

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But HSAs offer an important feature that many savers may not take advantage of. And that is a big mistake.

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Are you getting the most out of your HSA?

Money in your HSA that you’re not using right away doesn’t have to be in cash. You can invest that money and turn it into a larger sum, just as you can (and should) invest the money you have in your 401(k) plan or IRA.

But in a recent Fidelity report, only 21% of HSA members are investing their money. And while Fidelity reports that HSA balances are up, those who aren’t putting the cash into their accounts are missing out on a huge wealth-building opportunity.

HSAs not only give savers the opportunity to grow their money, they can also do so with tax advantages. That’s because investment earnings in an HSA can be enjoyed tax-free, just like withdrawals, as long as they’re used for qualified medical expenses. In this regard, they are similar to Roth IRAs and 401(k)s.

Plus, HSAs can actually double as a retirement savings plan for those who can take their money that far into the future. Normally, HSA withdrawals for non-medical purposes are taxed and penalized. But once you turn 65, those penalties no longer apply. So if you have funds in an HSA at age 65 that you don’t need for health care bills, you can withdraw your money for any purpose. The only consequence is that you will pay taxes on that distribution, just as you would pay taxes on withdrawing funds from a 401(k) or traditional IRA.

Don’t let your savings stagnate

The cost of health care has risen steadily over time, and that extends to specific Medicare expenses as well. Unfortunately, HSAs aren’t open to everyone. That’s because eligibility to participate in one depends on being enrolled in a high-deductible health insurance plan, which not everyone has.

but if you is it so eligible to participate in an HSA, it’s worth maximize your annual contributions If possible, invest your money and carry it with you until retirement, when your medical costs could increase. Having a dedicated source of health care funds could help you avoid a world of financial stress once you reach your senior year and your medical bills start to mount.

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