Have you started saving for retirement yet? If the answer is “no”, you’re not alone. According to the Employee Benefits Research Institute’s 2016 Retirement Confidence Survey, 36% of workers aren’t actively saving anything for their later years.
If you’re ready to get started with ramping up your retirement savings, your employer’s plan is a good place to start. Besides a 401(k), however, you might have another retirement savings option that you’re not even aware of–a Health Savings Account (HSA).
Even though it’s designed to be used for medical expenses, an HSA can be a valuable tool to save for retirement so here’s the skinny on how to use one to your advantage.
What is a Health Savings Account?
Without making things too complicated, a Health Savings Account is a special kind of tax-advantaged savings account that’s tied to your health insurance plan. You have to be enrolled in a high deductible plan for an HSA to be an option.
These accounts–similar to Flexible Spending Accounts (FSAs)–are meant to help you save pre-tax dollars towards your future medical expenses. The main difference is that unlike an FSA, you don’t have to spend down the cash in your HSA each year. You can simply roll it over from year to year until you actually need to use it. For example, if you know one of your kids is going to need to braces down the line, you could save for it now using your HSA.
The Internal Revenue Service (IRS) limits how much you can save in an HSA each year. The amount you can chip in depends on whether you have individual or family health insurance coverage. For 2017, the individual coverage contribution limit is $3,400; for family coverage, it’s $6,750. If you’re 50 or older, you can tack on an extra $1,000 in catch-up contributions.