Let’s say you have a stable job, and are ready to settle down, and start thinking about retirement. No fun, right? It can be difficult to think about money you’ll need 20-30 years from now.
The good news is, you’re already a step ahead if you have an HSA. Why? Two main reasons:
1. Tax benefits that build over time
2. Investment opportunity
Let’s explore how these two benefits of an HSA are an advantage for retirement planning.
HSA Tax Benefits: A Retirement Planning Boost
When it comes to retirement, it’s all about finding that little extra you can put away each month or year, and then letting that amount grow over time. But where is that seed money going to come from? One source can be tax savings. You’ll see below that it can be pretty simple to save thousands on taxes just by contributing to an HSA.
Don’t worry, the tax benefits of an HSA actually aren’t very complicated. The bottom line is that when you contribute to an HSA, you can report lower income, meaning you pay less tax.
Here is how that works if you have $70,000 in income as the head of a household, and contribute $5,000 into your HSA.
But medical expenses aren’t the only use for HSA funds, which brings us to the next key retirement benefit of HSA funds: investing.
Investing HSA dollars
Depending on who is facilitating your HSA, your HSA money can be invested, similar to other retirement funds. That means your HSA dollars are earning extra money instead of lying dormant. Generally, your HSA balance must be over a certain threshold to invest funds.
But why do you need medical dollars in retirement? Well, you will have medical expenses as you age. But if you have more than you need, don’t worry. After the age of 65, HSAs behave similarly to a traditional IRA. There is no penalty for using the funds for non-medical purposes.
So is it smart to put your tax savings into your HSA? Yes! Or put them in another kind of retirement account that grows over time.
How Taxes Work
Okay, deep breath. Let’s add up your taxes.
$1,385 + $4,680 + $3,773 = $9,838
How HSAs Help Lower Taxes
That’s exactly how it would work if I contributed $100 to my HSA.