(FinancialHealth.com) – As a savings account that allows for pre-tax contributions, an HSA is a smart way to set money aside for medical expenses. These accounts also allow for growth of contributions without taxing, and when the money is used for qualifying expenses, withdrawals are tax-free.
An HSA can be used for more than medical expenses, it’s also possible to use these funds for non-medical retirement funding. Here’s how to save for retirement using an HSA and make withdrawals without paying a 20% penalty.
Using an HSA Like an IRA
Even though the conventional purpose of a health savings account is providing a tax-free option for saving and paying for medical expenses, an HSA can also be used similarly to an IRA.
Why make this choice? Because many HSA accounts have investment options that will allow for considerable growth if the funds are left alone.
What About Tax Penalties?
Money withdrawn from an HSA and used for non-medical expenses will be taxed and the account owner will be expected to pay a 20% penalty for doing so. However, there is an exception to this rule. Account holders over the age of 65 can use their health savings for non-medical expenses without paying taxes or facing a penalty.
Who Should Use an HSA for Retirement Saving?
This choice is best for individuals who are already maxing out the traditional 401(k) and IRA options. These plans are better suited for retirement savings and should be taken advantage of when possible.
This makes health savings accounts a good option for those who have additional funds to invest. If you have already hit your cap on retirement savings, sock extra money away for the future with your HSA account. Unused funds roll over year to year, so you can build on the amount in the account.
Sometimes, preparing for the future is strategic. With a little education and smart planning, you can get ready for the next season of life.
~ Here’s to Your Financial Health!
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