This retirement savings plan is not on the table for me – but you should take advantage of it

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As someone who writes quite often about planning for retirement, I am well aware that Social Security will not provide me with sufficient income to cover my expenses. Rather, it’s up to me to save for retirement so that I can pay my bills worry-free.

To that end, I have always made it a point to put money aside in a tax-efficient pension plan. When I got my first job out of college, I signed up for my company’s 401 (k) plan. When I started working as a freelance I opened an IRA. And now I’m putting money into a 401 (k) solo, which comes with higher contribution limits.

But there is a pension plan that I have never been eligible for. And that’s really disappointing because it’s a diet that is packed with benefits.

Are you eligible for a health savings account?

A lot of people don’t think of health savings accounts, or HSAs, as retirement plans, and technically they aren’t. These accounts are designed to help savers cover the cost of medical bills. But since HSA funds never expire, they can be held until retirement. And it is this very option that makes these plans so valuable.

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HSAs are tax advantageous three times. Contributions are made on a pre-tax basis, like traditional IRA or 401 (k) contributions, and any money in any of these accounts that is not needed for short-term medical expenses can be invested.

Gains from investing in an HSA are tax-exempt and withdrawals are tax-exempt provided they are used for qualifying health care expenses. In this regard, HSAs mimic Roth IRAs and 401 (k) s.

Another great thing about HSAs is that even though they penalize you for making withdrawals for non-medical purposes, once you turn 65 that penalty goes away. At this point, you can access your money for any reason, and the only benefit you’ll lose is a tax-free withdrawal – the IRS will receive a portion of the amount you withdraw.

So why am I not taking advantage of an HSA? It’s simple. Eligibility to participate in an HSA is dependent on membership in a high deductible health insurance plan. And I don’t have one.

On the one hand, this is a good thing. This means that I don’t have to pay a huge amount of money out of my pocket before my health insurance coverage applies for the year. On the flip side, not being enrolled in a high deductible health insurance plan means I’m losing out on the many benefits that HSAs have to offer. Plus, health insurance plans with higher deductibles tend to come with lower premiums, which also saves you money.

In 2018, 45% of workers in the private sector had access to a high-deductible health plan, according to the United States Bureau of Labor Statistics. This is a big jump from 2010, when only 15% of workers in the private sector had one of these plans available.

If you are enrolled in a high deductible insurance plan, it is worth looking to fund an HSA. Health care could easily become one of your biggest expenses once you retire. Having a dedicated savings source to cover your costs could ease a lot of financial stress during your retirement years. Believe me when I say this is an option I wish I had.


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