Having just turned our income tax paperwork over to our accountant, I thought it might be good time to put in a plug for Health Savings Accounts – my favorite, tax-advantaged place to invest money right now.
You might be puzzled by the thought that a Health Savings Account is a great ‘investment’ vehicle, but that’s really how you might start thinking about them. If you are already in a high-deductible health plan (HDHP) with a family deductible above $2.6K, you should be able to open one up.
Here are the benefits:
First, HSAs are triple-tax advantaged. I can’t think of any other place to put your money that delivers: 1) a full tax credit when you make the deposit; 2) allows your money to grow completely tax-free (with investment options similar to a 401K plan); and, 3) can be withdrawn without any taxes to be paid on the principal or the growth.
Second, they can be invested for a long time. Unlike IRAs or 401Ks, there is no age that you are required to start making withdrawals. You can put the money in every year until you are 65 and then spend them as you will after that.
Third, they are very flexible. You can buy them through your employer, or buy them on your own. They are portable, so you can move them around if needed. Many of them come with simple debit cards which give you the convenience of paying for a doctor visit or prescription with a simple swipe.
Obviously, the limitation of a Health Savings Account is that you can only spend them on health care costs. That’s not too much of a limitation when you consider the average person is expected to spend $140K on out-of-pocket health care expenses after age 65.
While you can take withdrawals for current OR future health care expenses, many financial advisors suggest investing them for the long term and paying for current bills from another place in your portfolio. That way the monies in the HSA can grow tax-free for as long as possible. (If you pass away, the money rolls over 100% to your spouse).
This only scratches the surface on HSAs, but I hope it gets you excited about the opportunities to use it as a longer-term retirement investment vehicle. There are great sources for learning more about HSAs on the web, including the knowledgeable AskMrHSA.com. Give it a look!
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