Summary
Health savings accounts (HSAs) offer a rare triple-tax advantage: tax-free contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Although nonmedical withdrawals before age 65 generally trigger taxes and a 20% penalty, the rules become more flexible afterward. At 65, account holders can withdraw HSA funds for any purpose without the penalty, paying only ordinary income taxes on nonmedical withdrawals. This makes an HSA a potential retirement savings tool alongside traditional accounts. The article recommends maximizing HSA contributions when eligible and, when possible, paying current medical costs separately to allow invested HSA funds more time to grow.
The Motley Fool
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