This Retirement Savings Plan Is Off the Table for Me — but You Should Take Advantage of It

As someone who writes about planning for retirement pretty often, I’m well aware that Social Security won’t provide enough income for me to cover my expenses. Rather, it’s on me to save for retirement so I’m able to tackle my bills without worry.

To this end, I’ve always made a point to sock money away in a tax-advantaged retirement plan. When I got my first job out of college, I signed up for my company’s 401(k) plan. When I started freelancing, I opened an IRA. And now, I put money into a solo 401(k), which comes with higher contribution limits.

But there’s one retirement plan I’ve never been eligible to participate in. And that’s a real bummer because it’s a plan that’s loaded with benefits.

Are you eligible for a health savings account?

Many people don’t think of health savings accounts, or HSAs, as retirement plans, and technically, they’re not. These accounts are designed to help savers cover the cost of medical expenses. But because HSA funds never expire, they can be carried all the way into retirement. And it’s this very option that makes these plans so valuable.

Image source: Getty Images.

HSAs are triple tax-advantaged. Contributions go in on a pre-tax basis like traditional IRA or 401(k) contributions, and any money in one of these accounts that isn’t needed for near-term medical expenses can be invested.

Investment gains in an HSA are tax-free, and withdrawals are tax-free provided they’re used for qualified healthcare expenses. In this regard, HSAs mimic Roth IRAs and 401(k)s.

Another great thing about HSAs is that while they penalize you for taking withdrawals for non-medical purposes, once you turn 65, that penalty goes away. At that point, you can access your money for any reason, and the only perk you’ll lose is a tax-free withdrawal — the IRS will get a portion of the sum you remove.

So why am I not taking advantage of an HSA? It’s simple. Eligibility to participate in an HSA hinges on being enrolled in a high-deductible health insurance plan. And I don’t have one.

On the one hand, that’s a good thing. It means I don’t have to pay a whopping sum of money out of pocket before my health insurance coverage kicks in for the year. On the other hand, not being enrolled in a high-deductible health insurance plan means I lose the many benefits HSAs have to offer. Plus, health insurance plans with higher deductibles tend to come with lower premiums, so there’s some savings to be had there, too.

As of 2018, 45% of private-sector workers had access to a high-deductible health plan, according to the U.S. Bureau of Labor Statistics. That’s a big jump from 2010, when only 15% of private-sector workers had one of these plans available.

If you’re enrolled in a high-deductible insurance plan, it pays to look at funding an HSA. Healthcare could easily end up being one of your largest expenses once you retire. Having a dedicated source of savings to cover your costs could alleviate a lot of financial stress during your senior years. Trust me when I say it’s an option I wish I had.

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