Need more tax advantaged savings accounts? Meet the HSA, your new best friend.
For those who are looking for tax shelters in addition to IRA’s or 401(k)’s, I encourage you to consider an HSA, a Health Savings Account. HSA’s are our little gift from the IRS, designed to be used to cover medical expenses – but they pack a huge punch if used correctly.
An HSA is like an IRA, in that any amount you contribute to it is tax deductible. However, you also have the option to invest in an HSA and, unlike an IRA, the money and the investment gains come out tax free if spent on qualifying health related expenses!
Typically, HSA’s are funded and depleted within the same year to pay for out-of-pocket medical expenses, thus leaving the benefit of tax-free investment growth unused.
But if you are able to fund an HSA and cover your out-of-pocket medical expenses from another source, or if you don’t have any out-of-pocket expenses, then you can (and probably should) invest through an HSA, give it plenty of time to grow, and use the tax-free proceeds during your Medicare years.