Advertisement
IRAs

HSA vs. IRA: Which One to Fund First?

You'll maximize the tax benefits by letting the health savings account grow and using other money for current medical expenses.

I just received a $5,000 tax refund. Does it make more sense to contribute to my health savings account or to my Roth IRA? --H.N., St. Louis

Start with the HSA, which provides a triple tax break: Your contributions are tax-deductible (or pretax if you make them through an employer), the money grows tax-deferred in the account, and it can be used tax-free for medical expenses in any year. If you have an HSA–eligible health insurance policy—with a deductible of at least $1,300 (or $2,600 for family coverage)—you can contribute up to $3,350 to an HSA for 2016 (or $6,750 for family coverage), plus $1,000 if you’re 55 or older. If you still have money left over, contribute it to the Roth.

Advertisement - Article continues below

Among the expenses that qualify for an HSA: your deductible, co-payments, prescription drugs, dental and vision care, and other out-of-pocket medical expenses. You can even tap the HSA tax-free to pay long-term-care insurance premiums, up to certain limits that depend on your age. You can’t make new HSA contributions after you enroll in Medicare, but you can use the money tax-free for Medicare Part B, Part D and Medicare Advantage premiums (medigap does not qualify). You’ll maximize the tax benefits by letting the health savings account grow and using other money for current medical expenses. If you keep the receipts, you can reimburse yourself from the account for any eligible expenses since you opened the HSA (even years later), providing a tax-free stash of money for retirement.

Look for an HSA administrator that lets you invest in mutual funds rather than a low-interest savings account. To find one and compare fees, go to www.hsasearch.com.

Advertisement
Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
Where You Should Invest Now
investing

Where You Should Invest Now

Kiplinger.com senior investing editor Kyle Woodley joins our Your Money's Worth podcast to answer investor questions about tech stocks, the election a…
September 22, 2020

Recommended

How To Buy a Roth IRA When You Make Too Much To Qualify For One
Roth IRAs

How To Buy a Roth IRA When You Make Too Much To Qualify For One

With their tax-free growth and tax-free withdrawals, Roth IRAs are a great deal — if you qualify. If you don’t, well, there’s still a way to get into …
September 23, 2020
When Is Amazon Prime Day 2020?
spending

When Is Amazon Prime Day 2020?

Circumstances beyond its control have forced Amazon to move its annual Christmas-in-July Amazon Prime Day blowout sale in 2020 to ... later. Is Oct. …
September 22, 2020
A Step-by-Step Guide to Being an Estate Executor
retirement

A Step-by-Step Guide to Being an Estate Executor

Whether you’re planning ahead for your own heirs or have been asked to serve as an executor of an estate for someone else, it pays to understand what …
September 17, 2020
How to Finance Home Schooling Your Children
family savings

How to Finance Home Schooling Your Children

Kiplinger.com web editor Andrea Browne Taylor joins the Your Money's Worth podcast for a discussion on the financial pros and cons of homeschooling yo…
September 15, 2020