The Retirement “Loophole” That More People Than Ever Are Starting To Use

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More and more people have started to discover a retirement loophole that involves using a health savings account (HSA) to increase the savings they are setting aside toward their retirement.  As of January 2017 21.8 million people have opened a HSA, an increase of 9% since 2016.

The HSA functions in the same way as other retirement plans, where a certain amount of pre-tax dollars are set aside per year and allowed to compound.  The amount per year is not as much for an HSA as a 401(k) or an IRA.  Single individuals are only allowed to set aside $3,450 per year, while individuals in a family are allowed to set aside $6,750 per year and individuals over the age of 55 can add $1,000 to those yearly amounts.

The HSA shouldn’t be the only savings account you are putting toward your retirement, however it works very well in conjunction with the 401(k) or IRA plan you already have.

There are several things to take into consideration before signing up for the HSA. Only people who have a HDHP health insurance plan are qualified for the HSA. An HDHP plan is one that has low premiums (the amount paid to the insurance company monthly) and high deductibles (the amount you have to pay up front before your insurance company moves to cover you).

If you are an individual who goes to the doctor often, like someone with a health conditions or on the older side, then a HDHP plan, and in effect the HSA plan, might not be the best for you.

There is also a 20% fee that individuals under the age of 65 must pay if they take money out of their HSA for non-healthcare related reasons (individuals over 65 are allowed to take money out of their HSA for both healthcare and non-healthcare related reasons).

Despite a few of the drawbacks it is definitely something to consider as you near retirement.

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