If You're Not Using This Account to Save for Retirement, You Could Be Leaving Cash on the Table

Many people I know are saving for retirement in either an IRA, a 401(k), or a combination of both. And that's not a bad thing at all.

IRAs and 401(k)s come with different tax benefits. Traditional IRAs and 401(k)s give you a tax break on the money you put in, and investments get to grow on a tax-deferred basis. Roth IRAs and 401(k)s offer the benefit of investment gains that are completely tax-free, as well as tax-free withdrawals.

But while it certainly pays to take advantage of IRAs and 401(k)s , there's a lesser-known retirement account that should be on your radar. Forgetting about it could mean missing out big time.

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Don't neglect your HSA

It's not a given that you'll be able to fund an HSA. To do so, you must be enrolled in a high-deductible health insurance plan, and your plan's out-of-pocket maximum must also conform to an annual limit set by the IRS. But if you're eligible to participate in an HSA, then it absolutely pays to do so and earmark that money for retirement.

Now you may be thinking, "But HSA stands for health savings account -- how does that make it a retirement plan?"

Here's how. HSA funds never expire. You could fund your HSA this year and leave that money to grow for the next 30. Then, come retirement, you could end up with a sizable pile of cash at your disposal.

Meanwhile, what makes HSAs so great is that they effectively combine the tax breaks you get from both a traditional and Roth IRA or 401(k). With an HSA, contributions are tax-free, and money you invest gets to grow tax-free. Withdrawals are also tax-free when used for qualified medical expenses. And for better or worse, you can expect those to be significant.

Fidelity projected last year that a 65-year-old couple would need about $315,000 saved to cover their medical expenses in retirement. So if you were to amass a sum of that size in your HSA, it could do you a world of good -- namely, by making it so you don't have to stress about covering healthcare costs or dip into your IRA or 401(k) to pay those expenses.

There's no risk in funding an HSA

It's clear that HSAs offer tax benefits worth capitalizing on. But you may be wondering -- what if you end up with more money in your HSA than what you need to spend on healthcare expenses?

The good news is that once you turn 65, you can take a penalty-free HSA withdrawal for any purpose. If that withdrawal isn't medical in nature, you'll have to pay taxes on the funds you remove. But in that case, you've still gotten the benefit of a tax-free contribution and tax-deferred gains.

And remember, even if you're in excellent shape come retirement and are savvy about choosing your Medicare coverage , you're going to have to spend some money on healthcare. So if you wind up with a large HSA balance, there's a good chance you'll use a big chunk for medical expenses, thereby benefiting from the tax-free withdrawals we talked about earlier.

All told, if you don't contribute to an HSA when you're eligible to do so, it means you're giving up a world of tax savings. And you may also be giving up the peace of mind that comes with knowing your future healthcare costs are covered. So it pays to see if your current health plan is HSA-compatible, and if so, make your first contribution ASAP.

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