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Do you have a Health Savings Account (HSA)? If so, it’s time to ensure you’re truly maximizing its benefits for retirement. While generally, this savings vehicle is utilized to pay for medical expenses amongst individuals with high deductible health insurance plans, it can also be an extremely tax-efficient tool in your second act.
The perks: For one, contributions to an HSA are deductible from gross income, and two, distributions from the account are never taxed as long as they go toward a qualified medical expense. Additionally, HSAs have zero Required Minimum Distributions (RMDs), and your spouse can inherit the account while having the same benefits as you.
Much like any other part of your retirement portfolio, an HSA can be invested and earn the same returns. As an added bonus, distributions don’t need to pay for current medical expenses, meaning if you might need additional income later in retirement, keep your receipts and receive reimbursement at that time.
Food for thought: It goes without saying, HSA benefits span wide, but once you sign up for any part of Medicare, contributions to your account can no longer be made. If you had to ultimately decide between a traditional IRA and an HSA, would the HSA be the better choice? It’s something to consider, given the avoidance of RMDs and advantage of tax-free distributions for medical expenses.