If you are just graduating from college and have a brand new job lined up, you might find yourself as the owner of a brand new health savings account (HSA) as part of your benefits package. You might think with your new high paying job and the health insurance coverage that you have, that putting aside extra money into an HSA is wasting money that could be better used if it was seen on your paycheck.
In reality, when you are first starting out is the best time to max out your HSA contributions. There are a number of reasons to do this. An HSA can be a regular bank account, earning anywhere from 1-3% interest per year, but there are also HSA accounts that function as an IRA. This means the money you place into your IRA is invested in the stock market and becomes another form of investment. If you need the money for medical expenses, you can withdraw it tax free at any time.
While you are young and (hopefully) healthy, your medical expenses should be minimal. This is the time to start investing the HSA for one special reason. Once you are 65, you can use any money in your HSA as tax-free retirement income. This means that any money you can save in the HSA until retirement gives you the benefits of both a traditional and a Roth IRA. You can put the money into your account tax fee, and invest it into the market tax free. Once you reach retirement age, you can then with draw the money from the HSA tax free. By maxing out your HSA for as long as you are eligible, you can provide yourself a safety net in case of medical emergencies, and build a nice little nest egg for retirement.
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