You can only put so much in an IRA every year. In 2019, the cap is $6,000. But if you want to increase your retirements savings beyond what you can add to your IRA, look into HSAs.
An HSA, or a Health Savings Account, is a supplemental part of a high deductible health plan. You can add up to $3,500 to your HSA in 2019 and then withdraw that money to pay for qualified health-related purchases. Here's why an HSA is more than just another savings account.
The funds you put into an HSA are pre-tax. That means you can subtract the amount of your total income when you're adding up your tax bill. The initial contributions aren't the only tax-advantaged portion of the account. The funds get invested, and the earnings the account gathers year after year aren't taxed unless you treat the account like an IRA after age sixty-five.
FSAs, or Flexible Spending Accounts, are popular health coverage tools, but they aren't as useful as HSAs. With these accounts, you can set aside money every year for qualified expenses and save on your income tax bill. But FSAs operate on a "use it or lose it" basis. HSAs are different. You don't have to spend what you set aside every year, and you don't have to strategize your savings level. Instead, max out the account to get all of the pre-tax benefits.
As you get older, your health expenses will increase. Those expenses won't wait until you're retired. By setting aside money in a tax-advantaged account now, you can prepare for those future costs. You can use your HSA funds whenever you need to, so save now for your forties, your fifties, or even your eighties.
Maxing out your HSA every year is just as important as maxing out your IRA and your 401(k). Once you turn 65, you can withdraw money for any reason. All you have to do is treat the money as regular income on your tax returns, just as you would with a traditional IRA.
The sooner you take advantage of the right pre-tax accounts, the more you can save both now and for retirement. Contact us at Foster Financial CPA to get started in 2019.