NEW YORK (06/17/14)--For healthy Americans, the best use of health savings accounts (HSAs) might be as supplementary retirement accounts, and not for paying medical expenses (Wall Street Journal June 2).
HSAs were created to help consumers save for medical expenses. They also provide powerful tax shelters. In 2014, a married couple can put away as much as $6,550 ($3,300 for an individual and, if age 55+, individuals and couples may save an extra $1,000) and have all or some of that money grow in tax-deferred investments.
If you open an HSA, you may use the money to pay for deductibles, co-pays, and other medical expenses. After age 65 you may withdraw the money, penalty-free, for nonmedical use. The money will be taxable at that time but you still will have benefitted from years of tax deferral.
To qualify to contribute to an HSA:
An HSA provides a triple tax benefit:
At death, your HSA passes to your designated beneficiaries. It's tax-free for your spouse if used for qualifying expenses, and taxable for anyone else.
Because of the contribution limits, for many people an HSA will play only a minor part in paying for health-care costs in retirement. However, if you have good cash flow and liquidity, and are able to leave the money in the account, you could benefit from having an HSA and using it to supplement your retirement savings.
If you're employed and part of a group medical plan, ask your employer about an HSA. For others, many credit unions and other financial service providers offer HSAs. Compare fees and features across providers.
HSAs are complex and, if not administered properly, can cause adverse tax consequences. Make sure you understand plan details.
For related information, read "Everybody's Money Matters: Benefits of Health Savings Accounts" in the Home & Family Finance Resource Center.