It’s also worth noting that HSAs effectively convert to a traditional retirement savings plan once savers turn 65. Withdrawals taken at a younger age for non-medical purposes are penalized to the tune of 20%, which is double the penalty for taking an early withdrawal from an IRA or 401 (k).
But come age 65, HSA savers can access their money for any expense and avoid penalties. In that scenario, taxes do apply to withdrawals, but that’s no different than the taxes that come into the mix with traditional IRAs and 401 (k) s.
Do not pass up a solid savings opportunity
If you have a chance to fund an HSA, it pays to do so. But if you’re going to go that route, aim to invest your HSA and reserve that money for retirement, when you’re likely to need it the most.
Devenir’s research reveals that only 7% of all HSAs have funds invested. That suggests that most savers are using their HSAs to cover near-term expenses. While that’s most certainly allowed, it’s also not the best way to make the most of an HSA.
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