HSAs are a great tool for anyone over 50 to build assets today that are not subject to current income taxes and can be used later – still tax-free – for qualified health care costs.
I like to think of HSAs as offering a triple benefit: tax deductible savings, tax-deferred growth, and eventual tax-free distribution.
Of course, HSAs can be used to pay for current health care costs, and for some people that is a necessity. However for many it may be possible to not spend from an HSA today, but to use it as a powerful savings vehicle to apply in the future. And, we know that health care expenses are one of the fastest growing costs that retirees will face.
An HSA is not a “use-it-or-lose-it” vehicle. Rather, it is intended to be paired with high-deductible health care plans. The idea is that one will take a plan that will incur more out-of-pocket expenses not covered by that plan, and to pay those costs with funds from one’s health savings account.
For those who can do so, I recommend maximizing the savings in the HSA, but leaving an amount at least equal to one’s annual family deductible in a safe type of savings account -- and then strongly consider investing the rest, just as one might with an IRA or a 401k.