Is a health savings account (HSA) better than a 401(k)? You decide.

I have written about the virtues of HSAs before. But never did it become so clear to me that HSAs can be better than other retirement accounts such as 401(k) and IRA (I had a hunch, though).

HSAs have been around since 2003; yet, in my opinion, the HSA is the most misunderstood, the most underappreciated, and the most underutilized feature in designing health plans. So, before I present why HSAs can be better than conventional retirement accounts, let me present why HSA is the best tool to supercharge your health plan.

This is what I believe about how to rein in healthcare costsbending the healthcare cost curve:

  • We have been spoiled for a long time with virtually zero-deductible health plans, wherein we didn’t know what a particular medical procedure cost—nor did we care because someone else paid for it.
  • The only effective way to rein in healthcare costs is to have consumers’ skin in the game—making them financially responsible consumers of healthcare.
  • To get their skin in the game is to provide the Right Incentives through the Right Plan design.
  • And, the HSA is a pre-condition for the Right Plan.
  • With the Right Plan, we need to provide consumers with the Right Tools to enable them to do true comparison shopping for medical procedures.

Everything You Ever Wanted to Know About HSAs

Two definitive articles—and what is notable about them is that they were both written by financial planning experts—tell you everything you want to know about HSAs. Definitive means both are long for completeness. Fair warning: one of these is written by a professor with a Ph.D.

Supplemental Saving In An HSA For Retiree Medical Expenses

Could a Health Savings Account Be Better than an Employer-Matched 401(k)?

Before you read the articles, here are a few selected quotes:

The Health Savings Account (HSA) is unique in the landscape of tax-preferenced investment accounts, as it is the only type that enjoys both the benefit of tax-deductible contributions and tax-free distributions (for medical expenses).”

“In fact, the unique treatment of the HSA has created a wrinkle in the traditional approach of funding retirement accounts: given the inevitability of medical expenses in retirement, arguably the best savings account for retirement (or at least for a portion of retirement expenses) is to use a health savings account for retirement over ‘just’ an IRA alone.”

“…the fact remains that contributing the maximum to an HSA every year has the potential for more beneficial tax treatment than any other type of tax-preferenced account!


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