I’m Maxing Out This Retirement Savings Plan in 2023 — and You Should, Too

Saving for retirement is something that’s been on my radar for a long time — and it’s not just because I write about the topic often (though that helps).

I’m fully aware that Social Security may be forced to start cutting benefits well before I reach retirement age. And that means I could end up getting a lot less money out of the program than I’d normally be entitled to.

That’s why I make a point to try to max out my retirement savings. And this year, I’m excited to max out an account I didn’t always have access to: a health savings account (HSA).

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More tax benefits than any other account

Prior to 2022, I never contributed so much as a dime to an HSA. The reason? I wasn’t allowed to.

HSA eligibility hinges on being enrolled in a high-deductible health insurance plan. Last year, my husband switched jobs, and with that came a new health plan.

At first, I was a little bit horrified when I saw the deductible it came with. But then I looked at the bright side and reminded myself that we’d finally be eligible to participate in an HSA.

What makes HSAs so great is that they offer more tax breaks than any other retirement plan. With a traditional IRA or 401(k), you get a tax break on your contributions. With a Roth IRA or 401(k), you get to enjoy tax-free gains and tax-free withdrawals. With an HSA, you get all three, provided you use your money for qualified healthcare expenses.

Now before we get any further, it’s worth clarifying that while an HSA is designed to serve as a healthcare spending account, it can easily double as a retirement savings plan. First of all, seniors tend to have a lot of healthcare expenses, so funds in an HSA are pretty likely to be needed for that purpose in retirement.

But also, come age 65, an HSA can effectively turn into a traditional retirement savings plan. Penalties for non-medical withdrawals won’t apply at that point, and while withdrawals will be subject to taxes, that’s no different than a traditional IRA or 401(k) plan.

Because HSAs can double as a retirement plan, my goal is to max mine out this year but not use it. Instead, I plan to carve out room in my budget to cover healthcare expenses up front.

With a higher deductible, that won’t be easy. But I know that a good way to benefit from an HSA is to let my money sit and grow in a tax-free manner rather than take withdrawals to cover things like copays at the doctor.

A savings plan worth maxing out

This year, HSAs max out at $3,850 for individuals and $7,750 for families. If you’re 55 or older, you can add another $1,000 in contributions on top of whichever limit applies to you.

Even if you don’t anticipate spending nearly that much on healthcare in 2023, if you’re able to max out, it pays to do so. You may find that a robust HSA balance comes in handy when you’re retired and need heaps of money to cover your healthcare costs. And if you happen to avoid that fate, you’ll have a good old pile of regular savings to tap once you turn 65.

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