How IRAs Work And Why They Are More Popular Than 401(k)s

Choosing the right retirement account that best suits your needs is a vital step in making sure you are well prepared for retirement. So what is the real difference between a 401(k), an IRA and HSA? And how do you know which one is right for you? Watch the video to find out.

When people think of retirement savings, plans like 401(k)s and IRAs probably come to mind. But there are other unexpected ways to save for retirement, such as health savings account, or HSAs.

“I don’t think they were designed to be a retirement account,” said Angie Chen, assistant director of savings research at the Center for Retirement Research. “I’m just as puzzled in terms of why HSA has become another option for a retirement account.”

First introduced in 2003, HSAs were originally created to incentivize saving for medical expenses for those in a high deductible plan.

“The idea is that you can put money pre-tax into the HSA and set that aside so in the event that you need to spend money on your health care that would not be covered by your insurance plan,” Chen said.

While money in an HSA can also be used for investment, most HSA holders use the funds for its original purpose of covering medical expenses. In 2019, just 7% of health saving accounts had investments other than cash.

“I think folks miss the investment component and that is a major deal in being able to provide for healthcare expenses,” Odyssey Capital Advisors chief investment officer Jason Snipe said.

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How IRAs Work And Why They Are More Popular Than 401(k)s

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