Don’t miss out on this super convenient savings account.
IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
When it comes to saving for retirement, most people focus on accounts like 401(k)s. There’s a good reason for that.
A traditional 401(k) gives you a tax break on the funds you contribute towards your retirement. You can also enjoy tax-deferred investment returns. With a Roth 401(k), investment gains are tax-free, as are withdrawals.
Additionally, 401(k)s tend to be very easy to fund. Many companies offer these schemes and once you sign up, your contributions will be automatically deducted from your paycheck.
But there’s another type of account that doesn’t necessarily get enough attention from a retirement savings perspective: Health Savings Accounts (HSAs).
At first, an HSA may seem like a niche tool for covering medical expenses. After all, it’s in the name. But in reality, when used strategically, an HSA can prove to be even more powerful than a 401(k) in retirement.
Why an HSA is better than a 401(k)
It’s true that 401(k)s offer many tax benefits. But HSAs are unique in that they combine traditional tax treatment with the tax savings provided by a Roth 401(k).
When using HSA:
- Donations can be received tax-free
- Investment profits are tax-free
- Withdrawals are tax-free as long as they are used for qualified medical expenses
That’s quite a winning combination.
Now you may be thinking, “Well, while it’s a nice tax break, I guess you can only use your HSA for medical expenses.” But that’s what’s wrong.
It’s true that HSA withdrawals for non-medical purposes can be subject to penalties, but only if you’re under age 65. Once you turn 65, you can use your HSA for any purpose without penalty. This allows the HSA to act as a backup retirement account.
Of course, you may need a large portion of your HSA to cover your medical expenses in retirement. However, if you have money left over, rest assured that it will not go to waste or be subject to penalties.
If you use your HSA for non-medical withdrawals after age 65, your withdrawals will be taxed. That’s one of the problems. But even then, you’re not in a worse position than a traditional 401(k).
Don’t write off your HSA for retirement
When it comes to saving for retirement, you may think a 401(k) is your best bet. However, if your health insurance plan is compatible with an HSA, you can also incorporate an HSA into your savings plan. Ultimately, it could serve several important purposes in retirement. This means you have access to tax-free funds for medical expenses and income to cover expenses your 401(k) can’t cover.
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