The Health Savings Account (HSA) is an account that help you pay for qualified medical expenses. The account allows you to contribute pre-tax dollars to your account and can be used for medical expenses whenever you deem necessary.
Some might not realize the account has added benefits: As noted by Kathleen Elkins in her CNBC Make It article
, an HSA can also help supplement your retirement saving.
An alluring aspect of the account is its tax benefits. When you put money in your account, it is tax-deductible. While the money is in the account, it grows tax-deferred. And when you need to use the money for qualified medical expenses, you can withdraw it tax-free
Even though this account is called a Health
Savings Account, the funds in the account do not need to be used only for medical expenses once you reach age 65. You may then withdraw money from your account for non-medical expenses. However, if you use the money for other purposes before 65, there is a 20-percent penalty.
Nick Holeman, a certified financial planner, was quoted in Elkins’ column, “You can use the money similar to how you would with an IRA. You put money in pre-tax; there's an annual limit on how much you can contribute per year; and you can either use the money for medical expenses, or let it grow and invest tax-deferred, and then make withdrawals in retirement.” (CNBC Make It
A prerequisite for opening a HSA is that you must have a high-deductible health care plan (HDHP). HDHPs have low monthly premiums, yet have higher deductibles.
Good news for investors: HSAs can be used as self-directed accounts to invest in alternative assets. Even though the HSA contribution limit for single account holders is smaller than other retirement accounts ($3,400), it is still may be possible to build wealth in these accounts by investing in alternative assets.
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