Americans are using this ‘loophole’ to save more for retirement

nest egg

When it comes to building your nest egg, you’ve got more choices than you can think.

You can allocate pre-tax cash and use it towards medical costs each time you want. There’s no “use-it-or-lose-it” rule: Any unused funds will roll more than a year. That’s why HSA accounts are great!

What is most appealing is that they offer a triple tax benefit. The cash is tax deductible once you put it in, it climbs tax-deferred and you can take it out tax-free if used for qualified medical costs.”

You can even use the funds for non-medical expenses once you reach age 65, though if you withdraw money for non-healthcare expenses before 65, you’ll cover a 20 percent penalty. That’s why HSAs can be an appealing retirement-savings tool.

“You may use the money very similar to how you would using an IRA,” certified financial planner Nick Holeman informs CNBC Make It. “You put money in pre-tax; there’s a yearly limit on how much you can contribute annually, and you can either use the cash for health care expenses, or let it grow and invest tax-deferred, and then make withdrawals in retirement.

“It’s sort of similar to this retirement loophole trick and can be a powerful strategy if you have an HSA in the first location.”

You may just contribute money to an HSA if you have a high-deductible health care plan (HDHP), one which offers a lower monthly health insurance premium along with a high deductible. The maximum annual out-of-pocket costs for these programs are $6,550 ($13,100 for families).

HDHP’s are not for everyone In case you are on drugs, have a chronic illness or whether you’re older — anything where you may be visiting the doctor a good deal — then using a high-deductible will probably be very expensive for you.

Typically, it simply makes sense if you’re healthy and you don’t use the doctor frequently.

Before registering for an HDHP, you’ll want to sit down and ask yourself a few questions. How often do you go to the physician? Have you got a safety net that is large enough so that if you do should cover the high-deductible, you are able to pay that out of pocket without needing to eat rice and beans for a month?

If an HDHP makes sense for you and you choose to start an HSA, then the contribution limitation is $3,400 annually if you are single and $6,750 per year if you’ve got a family. If you’re 55 or older, you are able to create an extra $1,000 “catch up” contribution.

It is less money that you are able to put in that account compared to other retirement savings vehicles. So this account alone isn’t going to be almost enough that you save for your retirement, but it can be a nice addition to your regular retirement savings.

More and more Americans are catching on to the loophole. Since CNBC’s Tom Anderson reported in 2016, people had started 18.2 million HSAs as of June 2016, a 25 percent increase from the past year.

And while the money spent in HSAs is a fraction of what is stashed in IRAs and 401(k) programs, those that are using HSAs to save for retirement are gradually building up large savings: The ordinary account holder who uses an HSA as an investment option has a balance of $15,092.


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