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.
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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
Winners and Losers of Fed Rate CutsNavigating interest-rate changes can seem daunting, but these areas of the fixed-income market could perform better (or worse) than others.
-
What You Should Know About Spousal IRAsWithout spousal IRAs, you would need an earned income to contribute to your retirement account.
-
Credit Report Error? They All Mattercredit & debt Don't dismiss a minor error. It could be the sign of something more serious.
-
Insurance for a Learning Driverinsurance Adding a teen driver to your plan will raise premiums, but there are things you can do to help reduce them.
-
Getting Out of an RMD Penalty
retirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
529 Plans Aren’t Just for Kids529 Plans You don’t have to be college-age to use the money tax-free, but there are stipulations.
-
When to Transfer Ownership of a Custodial Accountsavings Before your child turns 18, you should check with your broker about the account's age of majority and termination.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
When It Pays to Buy Travel Insurance
Travel Investing in travel insurance can help recover some costs when your vacation gets ruined by a natural disaster, medical emergency or other catastrophe.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
