The value of a 401k and an IRA cannot be understated. However, there is a clearly a limit on their tax advantages based on the annual contribution limits. On top of that, you are penalized if you want to use any of these funds before retirement.
If there was another way to supplement or add a new savings vehicle on top of traditional 401ks and IRAs, you could save more or create more tax advantageous decisions with your current savings. You can do that with what we like to call the stealth IRA – the HSA (health savings account).
The Value of an IRA (and 401k)
The savings value of an IRA (and 401k) is very clear.
- Dedicated long-term savings
- Tax-free contributions (for 401ks)
- Tax-free growth of any investment returns
These retirement vehicles provide a clear path to save and invest for your future. Their tax structure just layers on more benefits to dedicate savings to these accounts. This is why 32% of American’s have a 401k and the average balance is $96,288. Even more, Americans are aware of their value. What if you want more options to save dedicated tax-free dollars for retirement?
The Stealth IRA (HSA)
If you want to add flexibility to your IRA (and 401k), you could consider adding an HSA to take advantage of their triple-tax savings. While an HSA by default is designed to created dedicated health savings, it can be used for anything not just medical expenses after the age of 65. In addition to the retirement savings options of an HSA, you can also use an HSA to pay for qualified out-of-pocket medical expenses today, for the just in case.
No mandatory distributions in retirement enhance the HSA savings value in retirement so your account can grow well into your 70s, 80s and 90s. In fact, the tax advantages of an HSA are greater than that of a 401k or IRA. Who knew?
Here are the 2018 HSA eligibility and contribution details for your reference to see if you can add a stealth IRA, the HSA, today.
If you need more help with health savings decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.