Health savings accounts (HSAs) were intended to be used to help pay for medical expenses. But they're actually the best retirement account in existence. That's why we're writing a two-part series on how you can get the most out of it!

Unlike all other tax-advantaged accounts, they provide a triple tax benefit: they have tax-deductible contributions, they offer tax-free growth inside the HSA, and you get tax-free withdrawals when used for medical expenses.

Limits

If you withdraw your money on or after the date you turn age 65 for non-medical expenses, you pay regular income tax on the money, the same as for a traditional IRA.
However, non-medical withdrawals before age 65 are a bad idea as they are subject to a 20 percent penalty!

High Deductible Health Insurance

Your HSA must be paired with a high deductible health insurance plan, which may be provided by your employer or obtained on your own. HSAs work especially well when paired with high deductible Obamacare plans.

Treat It as a Retirement Plan

You should always fully fund your HSA each year until you enroll in Medicare and ideally take few or no distributions. Remember to operate it as a retirement plan, because it is a terrific one, as you can see: 

■ Sam and Jane Smith are age 50. Today they open an HSA and begin contributing $7,750 a year. At 6% earnings per year, they have $209,785 at age 65.
■ Bill and Lacy Jones are age 30. Today they open an HSA and begin contributing $7,750 a year. At 6% earnings per year, they have $975,004 at age 65.

These couples did not use any of the HSA accumulations for medical expenses in the intervening years because they wanted to treat the HSA as a retirement plan.

Inflation Adjustments

The amount you may contribute to an HSA is adjusted for inflation each year. In 2023, account holders who are age 55 or over may make catch-up contributions of $1,000 in addition to their regular contributions.

Be sure to look out for part two in this series. Until then, if you would like help planning for your financial future, click here to schedule an appointment with one of Gold Standard's seasoned tax accountants.

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