If you’re currently in a high deductible health insurance plan (i.e., one with a deductible of at least 1,600 dollars for individual coverage and 3,200 dollars for family coverage), you may be able to set up a health savings account (HSA) this year. There are several advantages to having an HSA.

High-deductibility savings accounts (HDSAs) offer three distinct tax advantages for savers: tax-free contributions, tax-free investment gains, and tax-free withdrawals (provided the withdrawals are used to pay qualified medical expenses).

HSAs also allow you to be more flexible with your money because your funds don’t run out. A lot of people who use Flexible Spending Accounts (FSAs) are frustrated because they can’t carry over balances from year to year because they don’t have the flexibility to do so.

HSA funds never run out, and they’re also available 24/7. So if you need money tomorrow to pay for a medical bill, you’ll definitely be able to use your HSA.

While you certainly don’t need to hold off on using your HSA until you retire, there are several reasons why you might want to hold off on tapping your HSA account.

You May Have Needed That Money at a Time When You Need It More Than You Need It Now

It’s difficult to avoid healthcare costs in general at any point in life. However, there’s a good chance you’ll end up spending more on health care in retirement than you do now. This is largely due to aging and Medicare’s restrictions.

In addition, when you retire, you may find yourself adjusting to a lower standard of living due to a lack of work. All of this means that you may need your HSA more in the future than you do now, and that’s why it’s important to set aside funds for your later years.

But that’s not the only thing to think about. As mentioned earlier, HSA’s let you invest your unused funds tax-free. If you don’t use your HSA until you reach retirement age, you’ll have more time to build your HSA balance into a bigger pot.

Let’s say you put $250 per month into an HSA for 25 years. As medical bills pile up, you might only have a few hundred or even a few thousand dollars left in that account when you retire. If you don’t take any HSA withdrawals over the 25-year period, and your investments return an average of 8% annually, which is slightly lower than the stock market average, you’ll have more than $219,000 in your HSA account. This could significantly reduce your senior healthcare expenses.

It pays to hold out

If you’re stuck with a medical bill that your paycheck can’t cover, and you have the HSA funds available, by all means, take a withdrawal instead of charging the bill to your credit card and paying interest on it. If you can afford to keep your HSA unspent during your working life, do it. Saving for retirement could significantly reduce your financial stress in your later years.

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