Retirement saving scenarios

Adding an HSA to a retirement savings strategy has two direct financial and tax benefits:

The added yearly tax-savings is already clear. Over a 30 year period and with continued maximized yearly contributions (at 2021 levels), that combined HSA savings balloons to over $330,000 (assumes 3% annual growth). This money can be used just like a 401(k) after the age of 65.
Having HSA savings, on top of 401(k) savings, allows the account holder to save even more when considering expected medical expenses in retirement. HSA distributions, unlike 401(k) distributions are still 100% tax-free if used for qualified medical expenses. These are now expected to exceed $295,000 per couple in retirement. Those costs are on top of medicare coverage. The more money that can be used to pay for those costs tax-free, the bigger the total applied savings.

One interesting note that is not considered in the savings outline above is that employees who have both a 401(k) and HSA on average have a 42% increase in savings over 20 years (vs. 401(k) only savings). Participation in both plans has a direct impact on each individual plan. The combined average savings is also much larger than when an individual saves for a 401(k) or HSA only. In dollars, that amounts to $265,00 in projected savings vs. $187,00 in projected savings.

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How to add 37% to your tax-free retirement contributions this year

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