Using an HSA as a retirement account can help you save for medical expenses later in life. According to Fidelity, the average couple will need $300,000 in medical costs by the time they retire in 2020. These costs are routinely outpacing inflation. However, withdrawing HSA funds before the age of 65 is subject to a 20% penalty.
If you want to make the most of your HSA retirement funds, you should invest them. While most health care expenses qualify, not all of them do. Therefore, it’s important to set aside some funds for near-term medical expenses, then invest the rest of your money.
In addition to the tax benefits, HSAs can help you with your retirement planning. You can invest the funds in mutual funds or other types of investments, allowing them to grow over time. The tax benefits of an HSA make it a great supplement to an IRA or 401(k) plan. When you reach a certain age, you can even withdraw the funds without penalty, which makes retirement more palatable.
Using an HSA as a retirement account is not as difficult as it sounds. You can invest the funds in a variety of ways, such as bank accounts, credit union accounts, or mutual funds. You can also invest your HSA savings in employer-provided investments. Employer-provided HSAs allow you to invest the money you earn. Unlike an IRA, there are no income limits.
HSA funds aim to mimic indices, like the S&P 500 index. Ideally, HSA dollars should be invested in a portfolio with a diversified investment mix. You can use an online tool to help you determine the best asset allocation and mix for your HSA funds. A Fidelity advisor can help you decide the best investment strategy for your situation. This will enable you to maximize the potential of your HSA investment.
A HSA is similar to a 401(k) account, except that you don’t have to withdraw funds until you reach age 72. Therefore, it’s important to use HSA funds for other purposes before you reach retirement age. By waiting to use your HSA funds, you can maximize investment returns and available money. However, you should be aware of market fluctuations and avoid selling investments at a loss.
When it comes to investing in HSAs, you’ll find that they can offer significant tax benefits. Not only can you use these funds to pay for qualified medical expenses, but they are also tax-deductible. In addition, your contributions will reduce your federal income tax liability.
When you reach retirement age, you can use your HSA for non-medical expenses. This includes things like buying a boat. However, it’s important to note that these funds will be subject to state and federal taxes. You can also leave your HSA to your spouse. This way, your spouse can benefit from tax advantages on the savings.