51% of Americans Miss This Wealth Building Opportunity | Smart Change: Personal Finances

(Maurie Backman)

When it comes to saving for retirement, many people are familiar with the concept of contributing to an IRA or 401(k) and investing that money. And this is a good way to build long-term wealth.

But IRAs and 401(k)s aren’t your only option for saving money for your senior years. You can also save for retirement in a Health Savings Account, or HSA.

Yet many people are unaware of the wealth-building options that HSAs offer. As such, many people are really missing a chance to accumulate additional funds for their retirement.

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Are you getting the most out of your HSA?

An HSA is a hybrid savings and investment account that allows you to save money for short-term and future healthcare costs. Many people regularly confuse HSAs and FSAs (flexible spending accounts), but they are completely different.

FSAs allow you to set aside money for short-term healthcare costs, and you’re usually bound to spend your FSA balance year after year or risk losing funds. HSAs, on the other hand, do not have an expiration date. You can fund an HSA today and withdraw that money in 40 years, if that’s when you need it.

Plus, HSAs allow you to invest funds you don’t use immediately to grow your money over time (which FSAs don’t allow). In fact, the best way to put your HSA to good use is not to take withdrawals year after year, but rather to let that money rest and grow. That’s because gains from investing in an HSA are tax-exempt, as are withdrawals, as long as they’re used for qualifying healthcare expenses.

But many HSA savers are unaware of this fact. Fidelity reports that 51% of Americans don’t know they can invest their HSAs for additional growth. And of those who don’t have an HSA, 44% don’t realize that HSA funds can carry over year after year. It is this misinformation that could cost many people a lot of money in the form of missed opportunities.

Make good use of your HSA

To qualify for an HSA, you must be enrolled in a high-deductible health insurance plan. The definition of what it is may change from year to year. But if you meet this requirement, it pays to maximize your HSA contributions year after year and set aside that money for retirement.

Not only are HSA earnings and withdrawals tax-free, but you get tax relief on your contributions the same way traditional IRA and 401(k) contributions do. Also, once you turn 65, you can make an HSA withdrawal for any purpose without being penalized.

However, if you withdraw funds for non-medical reasons, you will have to pay taxes on your withdrawals. But this way, if your healthcare costs in retirement end up being lower than expected, you won’t have to worry about losing your money or facing costly penalties.

HSAs are among the most flexible savings plans. Maximizing yours could be your ticket to a financially secure retirement.

The $18,984 Social Security premium that most retirees completely overlook

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