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Why your next dollar shouldn’t go to your 401(k)


Jul. 13, 2015 CNN Money

The big draw: it’s tax free as long as you use the money for medical expenses. Contributions aren’t taxed when they go in, and you don’t pay taxes when you take money out either. Funds in a traditional 401(k), on the other hand, are taxed as income when you withdraw.

Anyone with a high-deductible health plan can get an HSA. It’s designed to help you save for out-of-pocket medical costs and a growing number of people have one. About 14 million Americans do, a 25% jump over the year before, according to a survey of 100 HSA providers by investment firm Devenir.

The money in your HSA can be invested into stocks and bonds, just like your 401(k). Fidelity expert Doug Fisher suggests keeping enough of the money in cash to cover your out-of-pocket medical expenses for the next year, and investing the rest. Be sure to check with your provider to see if they require a minimum before investing.

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