remodel your HSA into the final word funding car

Well being Financial savings Accounts (HSAs), because the title implies, assist individuals save for medical bills. —and plenty of can double as triple tax-advantaged investing accounts. 

Earlier than we stroll you thru these tax benefits, and the “shoebox” technique that unlocks them for retirement, right here’s an vital caveat upfront: You’ll be able to solely contribute to an HSA by assembly a couple of necessities, specifically being enrolled in a excessive deductible well being plan (HDHP).

One of these medical health insurance isn’t for everybody. It comes with the potential for top out-of-pocket medical prices, so it is usually greatest suited to more healthy people. However in the event you discover an HDHP is sensible in your state of affairs, think about opening an HSA. Then strap in for some unparalleled tax therapy.

How the small-but-mighty HSA holds its personal

Relative to the 401(ok) and IRA, an HSA has modest contribution limits of $4,150 for plans with particular person protection and $8,300 for these with household protection. That is as of 2024.

However these {dollars}, when invested, pack a a lot heavier punch. As a result of whereas 401(ok)s and IRAs include both tax-deferred contributions or tax-free withdrawals, HSAs supply each. Toss in tax-free development, and that’s the place the “triple” in triple tax-advantaged comes from.

Do not get us fallacious; two tax perks are nothing to sneeze at. In some circumstances, reminiscent of when matching cash is on the desk, you probably ought to begin filling up your 401(ok) first.

However an HSA could make for a fantastic addition to your lineup of retirement accounts. This is the best way to make it occur.

Unboxing the HSA shoebox technique

When you’re enrolled in an HDHP, you may open an HSA both by means of your employer or by yourself earlier than contributing to it and investing the funds. Much like 401(ok)s, an HSA is yours and stays with you after you permit your job. 

From there, repurposing its tax benefits for retirement boils down to 3 easy steps:

Step 1: Save your receipts

Right here’s the place the “shoebox” technique will get its title. A key function of HSAs is there’s no time restrict for getting a professional medical expense (QME) reimbursed. That’s how a surgical procedure in your 40s can change into retirement earnings in your 60s. Simply preserve your QME receipts stashed safely in a shoebox, folder, you title it. And keep in mind, any bills you racked up earlier than you opened an HSA aren’t eligible for reimbursement. 

Step 2: Do nothing

Depart your HSA investments untouched and let compound development do its factor. Think about paying for routine medical bills with money readily available, and build up an emergency fund as a hedge towards dangerous luck and that prime deductible you signed up for.

Step 3: Come retirement, money in

Years and even a long time down the highway, when the time comes to start out tapping into your HSA for retirement earnings, merely begin cashing in these QME receipts. As we talked about earlier, there isn’t any time restrict for getting reimbursed, so you may wait so long as you need or want earlier than making tax-free withdrawals. 

You’ll be able to technically use your HSA penalty-free for something, no receipts required, after you flip 65. However crucially, these non-QME withdrawals depend as taxable earnings, negating considered one of your HSA’s three treasured tax benefits.

See all of your retirement accounts—HSA included—side-by-side

If or when the time comes so that you can arrange an HSA, you’ll be able to benefit from it for retirement. And by connecting your exterior HSA account to Betterment, you may see it side-by-side with all the opposite accounts in your retirement objective. It could not add a lot to your total stability to start with, however with time—and triple the tax benefits—which will change quickly sufficient.