If you like traditional and Roth IRAs, then you might love the long-term growth potential of health savings accounts. They provide very similar benefits.
At face value, being subject to a high-deductible insurance plan may seem frustrating, but having one also gives you access to an HSA, which is a compelling benefit.
Typically, health savings accounts (HSAs) are used as savings accounts for medical expenses, providing tax-deductible contributions and tax-free withdrawals. There is, however, an interesting fringe benefit: Some providers allow you to invest your HSA in mutual funds and ETFs, allowing the balance to grow tax-free. If your company provides an HSA that does not offer these investment options, you are free to utilize any HSA plan, as long as you meet HSA eligibility requirements:
- You must be covered under a high-deductible health plan.
- You can’t be enrolled in Medicare.
- You can’t be claimed as a dependent on some else’s tax return.
HSAs have properties like traditional and Roth IRAs
HSAs have the potential to provide the benefits of both a traditional IRA and a Roth IRA. Because contributions to an HSA are made on a pretax basis — like a traditional IRA — they decrease taxable income by the …