For those who qualify, putting money into a Health Savings Account (HSA) is one of the smartest things to do with discretionary income. Smarter even than contributing to a traditional IRA, a Roth IRA, or a 529 college savings plan in most cases, according to mutual fund giant Vanguard. Only a 401(k) with an employer-matching contribution results in a higher annualized after-tax return.
What makes HSAs so special? Taxes, or more specifically, the lack of taxes. Traditional IRAs benefit from pre-tax contributions, but the accumulated income and principal gets taxed as income to the plan owner when the account is distributed, through required minimum distributions or otherwise. Roth IRAs take the opposite approach. Your distributions from the account are tax free, however, when you contributed to the Roth IRA it was with funds that had already been subject to the income tax. Similarly, 529 plans allow you to set money aside and watch it grow tax free, but like Roth IRAs, the funds contributed to the account had already been taxed as income when the money was earned.
To read further, please click the PDF below . . .
Comments