It's difficult sometimes to make ends meet while putting away
enough to reach our retirement goals, especially with an uncertain market and
ever-changing legislation. The government recognizes this. And so we're
fortunate, at least, that our current tax laws provide us with a great way to
save and reduce our taxes in retirement accounts.
Health Savings Accounts (HSAs), specifically, are rapidly
growing in popularity and provide a unique way to save money, grow retirement
accounts and pay for medical expenses. HSAs have been available since 2004 and
have the tax-free quality of a Roth IRA but the tax deductibility of a
Traditional IRA.
Rising health insurance costs have forced employers into
offering High Deductible Health Plans to employees. Some employers choose to
fund the HSA for the employee to take some of the sting out of the high
deductible. However, what makes these HSAs alluring is that contributions to
HSA accounts made by the individual are 100% tax deductible and distributions
for qualified expenses from the HSA are not taxable.
The best part of taking HSA distributions is that there is no
time limit on how long you can hold onto qualified expenses before requesting a
reimbursement. In fact, waiting to take distributions from the HSA gives the account
time to grow.
Most HSA accounts are meant to be spent, which means that most
of those offered are without access to true investments. In order to gain
access to investments that are going to grow your HSA, you need to open a
self-directed HSA account and direct the funds. You may direct the funds into
brokerage accounts, precious metals or, in the case of one account holder, real
estate. There is no limit on what you can invest in as long as you stay within
the IRS guidelines.
Consider this example: Joe has been
contributing to his HSA for 3 years and has accumulated more than $16,000.
Although he has more than $10,000 in reimbursable medical expenses he plans on
holding on to them for a while. As a real estate broker Joe sees lots of
opportunities for second mortgages. One of his office mates, Phil, has a deal
that requires additional cash. A first mortgage has been obtained by Phil’s
client for the purchase but the renovations will require an additional $15,000.
Joe offers to lend the funds to Phil’s client for 8% and will secure the
financing with the property. The money will be tied up for 2 years but during
that time it will be earning a reasonable interest rate.
Why not invest in something long-term and request reimbursement
10, 15 or 20 years in the future? Allowing your contributions to grow long-term
(now $6,450 per family in 2013) could result in a lucrative and pain-free
investment.
New Direction IRA is a self-directed IRA and
HSA account administrator and does not sell or sponsor any investment products
nor provide investment or tax advice. Since 2003 New Direction has helped
clients invest in what they know and understand.
