Ask a Fool: What Can I Do if the IRA Contribution Limit Isn't Enough?

There's another kind of tax-advantaged account you may be able to use.

Matthew Frankel, CFP
Matthew Frankel, CFP
Aug 10, 2018 at 12:00PM
Investment Planning

Q: I'm 35 and don't have a retirement plan at work, but I want to set aside more than the $5,500 annual IRA maximum contribution in tax-advantaged retirement accounts. Is there anything else I can do?

There could be another option. If you have a high-deductible health insurance plan, you qualify to contribute to a health savings account, or HSA. Contributions to these accounts are made on a pre-tax basis, so you get a current-year tax benefit. And if you choose to use the account to pay for qualified medical expenses, withdrawals will be tax-free -- a unique double-tax benefit.

Why do I bring this up when you asked about retirement? Because health savings account contributions can be invested in a variety of mutual funds, similar to a 401(k), and unused funds carry over year after year. Plus, after you turn 65, you can use the money in your account for any reason.

Fidelity estimates that the average couple who turns 65 in 2018 will spend $260,000 on healthcare expenses in retirement, so this could be an excellent way to boost your retirement savings and get a double-tax benefit for your eventual healthcare expenses. With a 2018 annual contribution limit of $3,450 (individual coverage) or $6,900 (family coverage), a health savings account could be a great way to supplement your maxed-out IRA.