Dec 21, 2022
As we close out 2022, I want to ensure you're setting yourself up for success in 2023. A great way to do that while helping you save for retirement is opening a Health Savings Account (HSA). On this episode, I'm going to break down the three reasons why opening an HSA is a smart retirement planning move and how to choose the right HSA provider.
You will want to hear this episode if you are interested in...
- Why an HSA is different than any other retirement account [1:43]
- Investing with an HSA [4:00]
- Using an HSA to reimburse your medical expenses [9:52]
- The logistics of opening an HSA [12:24]
What does an HSA have to do with retirement?
A critical part of retirement planning is developing strategies that help you save the money needed for retirement. You're likely already doing that through your employer-sponsored retirement plan, but you might not be taking advantage of a potentially better retirement savings option known as a Health Savings Account (HSA). Many people do not automatically connect an HSA to retirement planning, but the two go hand in hand.
The first reason you should consider opening an HSA in 2023 is that it’s a triple tax-free account. This means you receive a deduction when you contribute to the HSA. Any gains, interest, or dividends are tax-deferred while your money is invested. And if you take the money out for health related costs, it's completely tax-free. Once you reach 65, if you have excess money in your HSA that you need for non-healthcare related expenses, you can withdraw the money, and it will be taxed just like a 401k distribution.
Quality investing with an HSA
The second reason you should open a health savings account is that the money can be invested. An HSA’s real benefit is that you can experience compound growth like regular retirement accounts. Many people do not use an HSA to it's full potential by treating it like a medical checking account. To get the most bang for your buck, you need to invest your money in some type of a bucket strategy.
Because you’re using this account to pay for out of pocket medical expenses, emergencies, and sicknesses, you want to invest the money in relatively conservative, minimal fluctuation buckets like money market or short term bonds. If you don’t plan on needing the money for a long time, then a longer term investment would be best. This looks like stock funds, real estate funds, and possibly commodities funds for longer term growth. You also want to make sure you’re getting a competitive interest rate. If you're not earning at least 3% interest on your Health Savings Account, you might want to consider switching to a different HSA. Listen to this episode for more on why opening an HSA in 2023 is a great move for retirement planning!