Health savings accounts (HSAs) are a uniquely attractive savings vehicle. Unlike any other tax-advantaged account, they provide a triple tax benefit:
1.
Contributions are tax deductible.
2.
They grow tax-free.
3.
Withdrawals are tax-free if used for medical expenses.
Withdrawals after age 65 not for medical expenses are subject to regular income taxes.
Some wealth advisors recommend that HSA owners treat their accounts like a super IRA, by maximizing their contributions and making few or no withdrawals. By the time they retire, they could have a substantial amount saved in their accounts. After retirement, they can withdraw their money tax-free to pay medical bills or use it for other purposes and pay regular tax on it.
HSAs are not subject to annual required minimum distributions as traditional IRAs are, so some HSA owners could end up with a substantial amount of money in their accounts by the time they die.
HSAs have their own set of rules on what happens when the account owner dies. These rules differ greatly from those for retirement accounts, such as IRAs and 401(k)s.
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