How to Complement, Supplement or Replace Your 401(k) Savings
Consider this, 401(k)s and IRAs are one of the most tax-advantaged investments opportunities on the market. The clear downside being that money is locked until 59 and 1/2 years of age (unless you are willing to incur early withdraw penalties). Most tax or financial advisors recommend that you max out your 401(k) contributions each year. Combining tax-free contributions and investment growth potential is just too good of a combo to pass up.
The New Stealth IRA
HSAs (Health Savings Accounts) aren’t new, they have been around since 2004. They might be the best new investment addition to supplement or replace your 401(k) or IRA savings. HSA tax structures mimic a 401(k) and IRA, but on top of those similarities, they also allow for tax-free distributions (as long as those funds are used for qualified out-of-pocket medical expenses) at any point in the future.
HSA Investment Benefits
What are the investment values that an HSA can provide?
- Triple Tax Benefits – tax-deductible contributions, tax-free interest, and tax-free withdrawals (for medical expenses) mean you can use tax-free money from your HSA to pay for health expenses. This is an incredible way to minimize real health costs increases year after year.
- Self-Directed Investing – Low cost, long-term, short-term stocks, bonds, mutual funds mean you can invest in what you want. HSAs provide that flexibility. When selecting providers review their investment options to ensure this is included.
- No Mandatory Distributions – No mandatory distributions in retirement enhance the HSA savings value so your investment account has the potential to grow well into your 70s, 80s and 90s.
In fact, the tax advantages of an HSA are greater than that of a 401(k) or IRA. It’s the only 1-2-3 punch of its kind on the market.
Invest For Your Future Health Costs
The investment and tax opportunities an HSA provide might seem unnecessary if you are already utilizing a 401(k) or IRA. But consider this, healthcare costs now are expected to exceed $275,000 per couple in retirement. These costs are on top of Medicare and separate from general retirement. Opening an HSA is the only direct way to save and invest tax-free money for these health costs. You can see if you are eligible for an HSA here.
When reviewing your healthcare selection for next year, consider an HSA-eligible healthcare plan (like a high deductible health plan). It is the only way you can qualify to open an HSA and become eligible for their unique investing and tax-savings tax structure.
Disclaimer: This content does not necessarily represent the views of IWB.