Last time, I talked about the health savings account (HSA), and how it offers an unprecedented triple-tax advantage: the money you contribute for qualified medical expenses is tax-free, grows tax-free, and can be withdrawn tax-free.
It’s like your own little shell company in the Cayman Islands.
Now, the important point here is that the HSA must be used for qualified medical expenses. If you don’t use it that way, say if you raid the account to pay for a trip to the Cayman Islands, you will have to pay income taxes on the withdrawal, and most likely also a 20% penalty.
So if you took out $5,000 from your account, and had a median household income, you’d have only about $3,000 after all was said and done.
So don’t do that, obviously.
But even saying that, can you use an HSA, with all of its tax-advantaged goodness, to save for retirement?
The answer is: sort of.