With all the talk going around about how great 401(k)s and IRAs are for retirement savings, other fantastic retirement savings accounts aren’t getting the attention they deserve.
One such retirement savings account is the health savings account (HSA). Yes. The HSA.
And there’s a free tool out there ready to help you — the health savings account calculator.
What is a health savings account?
If you have a high-deductible health plan (HDHP), you’re eligible to open an HSA, a tax-advantaged savings account designed to help you pay for qualified medical expenses.
As it turns out, you can use an HSA to pay for more than just qualified medical expenses — you can use one to pay for health insurance premiums (if you’re 65 or older), long-term care, and any other retirement expense you want.
If you withdraw funds for uses other than medical expenses or long-term care, you’ll pay a penalty tax unless you’re 65 or older, in which case you’ll pay no penalty tax.
So why should you invest in a health savings account? HSAs have three tax benefits.
With a 401(k) or traditional IRA, you can deduct contributions from your income tax, and your investment grows tax deferred — you’ll pay tax for retirement withdrawals. HSAs enjoy those two tax benefits plus tax-free withdrawals for qualified expenses and then tax-free withdrawals period if you’re 65 or older.
Anyone can contribute to your HSA — you, your employer (if you have an HSA through your employer), your partner, and any other eligible person.
And if you don’t use up your savings by year’s end, it’ll roll over into the next year, unlike a flexible spending account. Where’s the downside?
The health savings account calculator
To help you determine how much you need to save for retirement with an HSA, you can use a health savings account calculator. HSABank has a calculator you can use for free.
How to use an HSA calculator
You’ll need to get some numbers ready. To use the HSABank health savings account calculator, you’ll need accurate data to put into the following required data fields:
- your annual contributions
- the average amount you expect to spend each year on medical expenses
- the number of years you expect to have an open HSA
- your federal income tax bracket
- your state income tax bracket
- your expected rate of return
This calculator will show you the end balance of your HSA, as well as how much you save on tax-deferred growth. Unlike most other retirement calculators, this one won’t create an instant savings report for you.
The bottom line
Though the HSA is not a traditional retirement tool, it can be used to help boost your golden years. To learn more about using HSAs for retirement, check out our guide to retirement savings accounts and retirement calculators.