Around our first anniversary, Christy and I got a
dog mutt named Godiva. At the time, she was a valuable and fun companion. Fifteen years and three kids later, we still love her, but her early morning demands, incessant barking at nothing and hidden poops in the house have left me wanting for more. Fortunately, those of us stuck with a high deductible health insurance plan can get a new best friend that just happens to be the best investment vehicle available, in the form of a health savings account (“HSA”).
A HSA is the best of all worlds, as it works like a traditional IRA and a Roth IRA, since you can deduct your contribution regardless of your income, it grows tax free, and you can withdraw the money tax free for qualified medical expenses. That all sounds great, but it actually gets better. Not only do you get the IRA benefit of a tax deduction and the Roth benefit of tax free withdraws, but you can wait until your HSA account has a large balance and then reimburse yourself for all of your prior medical expenses since you opened the HSA account, even if that is 20 years ago, so long as those expenses were not itemized or reimbursed (so save your receipts and tax returns). If you have done that, bought a long-term care policy, and still have too much money in your HSA, then upon reaching age 65, you can take the rest of the money out of the HSA to spend however you like and it will be taxed at ordinary income rates much like a traditional IRA, all without any penalty.
As a result, I encourage everyone who is eligible to open a HSA and contribute to it even over a Roth IRA if you have to choose, with the plan being to use this money as a primary retirement account just like your 401k and IRA.