Maurie Backman at Kiplinger answered a reader whose new health plan came with an HSA. The reader knew the account was supposed to be valuable in retirement but worried it was a hassle: they are not organized, and saving receipts for decades sounded like a burden. Was it worth it?
My answer was yes, and here is why. Traditional IRAs and 401(k)s give you pretax contributions. Roths give you tax-free growth and withdrawals. With an HSA, you get all three. Contributions reduce taxable income, growth is tax-free, and qualified withdrawals are tax-free. No other account does all three.
The comparison people should be making is not HSA versus nothing. It is HSA versus the FSA most employers also offer, and there the HSA wins easily. FSAs cap your contributions lower, expire at year-end or close to it, and are not portable when you leave your employer. An HSA is yours permanently, the balance carries over indefinitely, and you can invest it once the balance clears your plan's threshold.
On the reader's worry about not using it all: there is really no risk of ending up with too large an HSA balance. Healthcare in retirement will absorb whatever is there, and after 65 the money can be withdrawn for any purpose with ordinary income tax and no penalty, which makes it a backup IRA at worst.
On the receipts: a folder in cloud storage, one photo per receipt. Thirty seconds a visit for a tax-free withdrawal 20 years from now is a good trade.
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