HSAs are a triple tax break that can help fast track retirement savings

Are you among the millions missing out on one of health care’s best financial fixes?

Health savings accounts (HSAs) let folks save tax-free for medical needs. If you have a high-deductible health insurance plan (over $1,350 for individuals or $2,700 for families), you’re eligible. Harness HSAs to help fast track your retirement.

They have three great features: Contributions are tax deferred and you can invest the funds; their growth isn’t taxed; withdrawals used for qualified medical expenses aren’t taxed either. A triple tax break! Huge. 

Some confuse HSAs with flexible spending accounts (FSAs), which are also tax-free and cover costs like copayments and prescription drugs. But FSAs are more restricted. The most crucial limitation is FSA contributions are typically use-it-or-lose-it. If you don’t use them within the plan year (plus a short grace period, perhaps), they expire.

HSAs are simpler and more flexible. And, critically important, they aren’t use-it-or-lose-it. That means growth can compound over time.

“Longer-term advantages, after the age of 65, may include the payment of Medicare premiums and other long-term care expenses," explains David Musto, president of Ascensus, a financial services firm that focuses on retirement, education and health care. "The HSA becomes an important aspect of both solving near-term medical expenses, but also for larger expenses well into retirement with those accumulated earnings.”

As Musto explains, “HSAs are under your control. You decide when and how the dollars are taken from the HSA. In 2017, 87 percent of HSA distributions were completed using the associated debit card versus needing any sort of employer administrative approval.”

By determining when to use the funds, or not, you allow them to grow tax-free. That’s what spikes HSAs’ value to you later on in life. Even if you have big 401(k) savings, withdrawals are taxable unless you have a Roth plan. Paying Medicare premiums and other expenses with tax-free HSA money gives you much more flexibility. 

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Even before retirement, HSAs are super handy. Unexpected medical needs can happen any time. Many folks aren’t ready. One survey found 46 percent of consumers wouldn’t be able to pay an unexpected $1,000 medical bill within 30 days. The average bill for an emergency room visit is nearly double that, $1,917. These events can quickly derail your budget, especially if you have a high-deductible plan. Tax-free savings won’t heal you if you lop off your finger tip with a power saw (which I did 50 years ago), but they will make it easier to endure.

HSAs make retirement easier – and cheaper – too. Health care expenses dominate many retirees’ budgets. Having an HSA means a tax-free lifeline to cover nursing home stays, prescription drugs, medical supplies and so much more. This is a key reason many employers offer them: to complement retirement plans, including 401(k)s. Even if you have an easy time paying for medical needs today and have a comfortable buffer for unexpected expenses, saving in an HSA for the future is important.  

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While 81 percent of eligible employees have enrolled in an HSA, about 61 percent of Americans aren’t yet eligible. If that includes you, ask your employer to consider offering one during their next benefits review. The added savings power gives you greater confidence during health emergencies while helping you save for later retirement medical needs.

Ken Fisher is founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter: @KennethLFisher

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.