Interesting article at Free Money Finance on how to maximize your savings on a Health Savings Account, turning it into a “super Roth”.
For the first two years, I followed conventional practice and used HSA funds to pay for all of our medical expenses, including approved expenses that were not covered by our insurance plan (over the counter medications and such). However, at the end of 2007 I began to think about the conventional wisdom and studied various government rules and publications about HSA contributions. It was then that I realized that I could likely obtain a greater long term financial benefit from my HSA funds by NOT spending them now. Instead, I could let them accumulate in the account and withdraw those funds when I retire later (including any investment earnings and appreciation), absolutely tax free. In other words, I was going to use my HSA account as a “super Roth” account.
Why do I refer to my HSA as a “super Roth” account? We all know that funds that are deposited in a Roth IRA (or that are contributed to the Roth component of a 410k plan) can be withdrawn in retirement tax free, including accumulated earnings and appreciation on the contributions. The only drawback is that the contributions are “below the line” i.e., they are included in your taxable income. Nevertheless, that is still a good investment strategy for many because tax rates are expected to go way up for future generations. (If you don’t believe this, do some more research!) Turning to the HSA, we now see that you can get the tax-free benefit both going in and coming out. You don’t pay any tax at all on those HSA funds, as long as they are used for qualified medical expenses. Thus, it is a “super” Roth. For me, its really a double super-Roth because our income is over the limit allowed for contributing to a Roth IRA. For the HSA “super” Roth, there are no such income limits.
Tags: finance, retirement
Tags: finance, retirement
