If you had a choice of putting money into either a traditional IRA or an HSA, the money in the HSA would perform better than the money in the IRA. Why? With the HSA, it’s possible to avoid taxes forever. You can’t do that with a traditional IRA because you pay taxes on the back end when you withdraw funds.

With an HSA, you can withdraw funds at any time, tax free, to use for qualified medical expenses. When you reach Medicare-eligibility age (age 65), you qualify for an added benefit because you can use the HSA funds to cover your health insurance premiums, including Medicare Part B premiums and long-term care insurance premiums. These expenses are inevitable, so why not pay them with tax-free cash?

Of course, we want you to have all your retirement accounts growing tax free or tax deferred. So you could have both the traditional IRA and the HSA. You should also consider the Roth IRA, the 401(k), and the defined benefit plan.

But I think the HSA can work very well if that fits your medical needs at the moment. And if it fits your needs for many years, you could have a nice nest egg later.

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