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Health Savings Accounts, More $$$$ in Retirement:

If you have a health savings account, or want to find a way to save more for retirement, please read on.....

HSA accounts work a lot like your 401k/Traditional IRA/SEP-IRA: Contributions are tax deductible, but unlike taxable distributions from a traditional IRA or 401k, distributions from an HSA are tax free if used for medical expenses. So if you're in the position to use your HSA as a long term savings plan, rather than a short term funding plan for your medical expenses, you'll have more money to spend down the road when you distribute from your retirement accounts.

Here's how it works:

  • Make your annual HSA contributions ($3600 single/7200 married)

  • Don't use the funds for short term medical expenses.

  • Instead, invest the HSA funds long term (i.e.: stock index fund/ your favorite stock or mutual fund), just as you would invest your retirement funds.

When you retire and take distributions from your IRA/401k/SEP-IRA, you will also withdraw funds from your HSA. To qualify for tax free treatment, you must use those HSA funds for medical expenses (which you will have!)

This idea is suitable for someone who can afford to pay for their short term medical costs from personal funds and is looking for a tool to have more of their savings grow tax free.

THE CATCH...... To qualify for an HSA, you must enroll in a high deductible health insurance plan (HDHP). Nothing fancy here: it's a plan with a high deductible in exchange for lower monthly premiums. In other words, you're covered if there's a major medical event, but you'll pay more for each of your doctor visits . Once enrolled in an HDHP, then you open an HSA with a bank or mutual fund and make your contributions.

I know it sounds complex, but it really isn't. Open a HDHP. Open an HSA. Fund the HSA. Invest long term. Withdraw when you start taking distributions from your IRA/401k.

Hope this helps. If you have questions, please let us know.

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