Technically, a health savings account is not a retirement plan. But it can function as one.
An HSA lets you set aside money for healthcare expenses. You can use your funds immediately, or invest the money you’re not using so it grows into a larger sum and carry it into retirement.
HSAs actually offer more tax benefits than any of the aforementioned plans. That’s because contributions are tax-free, investment gains are tax-free, and withdrawals are tax-free, provided they’re used to pay for qualified healthcare expenses.
If you take a non-medical withdrawal from an HSA, you’ll be hit with a steep penalty — an even larger penalty than what you’d face for taking an early withdrawal from an IRA or 401(k). But once you turn 65, you can withdraw HSA funds for any purpose and avoid penalties. The only catch in that scenario is that you’ll pay taxes on your withdrawal, but those are the same taxes that apply to withdrawals from a traditional IRA or 401(k).
Putting money into a 401(k) is by no means a silly move — especially if there are employer-matching dollars in play. But you may want to branch out beyond your 401(k) in the course of building retirement wealth. And a traditional IRA, Roth IRA, and HSA are all good options to look at for your money.
