Read This Before You Put Another Dollar Into Your 401(k)

Sacha Strebe

While some of you are only just getting your head around saving for retirement in your 20s, here's something you might want to consider before throwing all your gold eggs into the 401(k) basket. Finance experts say your health savings account (HSA) could be a better place for your next dollar. Why? According to Money, it's tax free as long as you use the money for medical expenses. Any contributions you put into or take out of the account aren't taxed. Whereas any cash you deposit into a traditional 401(k) is taxed as income when you withdraw. So how do you get started? HSA was designed to help you save for out-of-pocket medical costs, so anyone with a high-deductible health plan can get one. Money in an HSA can be invested in stocks and bonds similar to a 401(k), and you can remove funds at any time before age 59 1/2 without being penalised, unlike with a 401(k). The only thing is that money from an HSA has to be used toward medical expenses, or you'll be hit with a 20% penalty and owe regular income taxes.

To read more about the benefits of HSA versus 401(k), visit Money.

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