Recent economic uncertainty has made it more important than ever to prepare for the future. That means saving money to cover healthcare costs and to get ready for your retirement.
The good news is, you have more time to invest in both an individual retirement account (IRA) and a health savings account (HSA) for last year. The contribution deadline for both is tied to the tax filing deadline, which means you can make deductible contributions for 2019 until July 15 because the government has extended the deadline due to the coronavirus.
If you have the funds and are entitled to take these deductions, you should make wise use of this extra time to try to max out both accounts.
Why you should make 2019 HSA and IRA contributions
IRAs allow you to invest for retirement and begin withdrawing money at 59 1/2, while HSAs allow you to save money to cover healthcare expenditures. You also have the option to leave HSA money in your account to grow over time so it can be used as a retirement savings account, too.
You can choose a traditional IRA to claim a tax break this year as you make contributions, or a Roth IRA, which gives you the break later when you enjoy tax-free withdrawals.
HSAs, on the other hand, provide tax savings both when putting money in and taking it out because contributions are deductible and you can withdraw money for healthcare costs without paying taxes as long as you pay qualifying health expenses. If you withdraw funds for other purposes, you will owe a penalty until you're 65, after which time you can make withdrawals for other reasons but will be taxed at your ordinary rate.
Although you need to check your eligibility, when you max out your IRA and HSA now for the 2019 tax year, you can score the tax savings when filing your returns in 2020. If you don't take advantage of this, you could still contribute this year but would have to wait until you file your return for the 2020 tax year to actually reap the tax benefits.
There are also other benefits, too. If you have healthcare costs to pay, you'll have peace of mind of knowing the money is there in your HSA (and your care costs will be cheaper because you weren't taxed on money you're paying them with).
You can also invest both IRA and HSA funds in stocks. Now is a great time to get your money into the market because many good stocks are on sale due to the unprecedented economic shutdown that has wreaked havoc across world markets.
While you shouldn't invest in stocks with money you'll need to pay bills right now (there's a good chance the market could fall further, and you won't have time to wait out the downturn), you have a lot more time to max out your HSA and IRA. You can start working on investing a little bit at a time through the extended July tax filing deadline.
Use the extended deadline to max out your HSA and IRA contributions
For your 2019 tax year, you can contribute up to $6,000 to an IRA if you're under 50, or $7,000 if you're 50 or over. You can make HSA contributions up to $3,500 if you have individual coverage or $7,000 with a family plan, and those who are 55 and up can make an additional $1,000 catch-up contribution.
Making these contributions can have a huge effect on your financial security, especially if you need money to pay medical bills or if it takes a while for your retirement investments to recover from recent stock market volatility.
Since you have extra time to find the money, aim to max out your contributions to reap all the benefits that HSAs and IRAs provide.