This account is like an ‘extra strength’ Roth IRA, advisor says. Here's when to use it

cnbc.com:

For savers, choosing how to best allocate money among a stream of account types may seem an impossible task.

There are 401(k) plans, individual retirement accounts, 529 plans, high-yield savings accounts, taxable brokerage accounts, flexible spending accounts, health savings accounts and so on — a veritable hodgepodge of letters, numbers and tax rules.

Each saver is different, meaning the optimal financial answer will vary from person to person.

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But for many people, there seems a clear path: After saving enough money to get your company's full 401(k) match, save your next dollars in a health savings account if you have access to one, according to financial advisors.

«Imagine a Roth IRA, but extra strength,» said Sabino Vargas, a certified financial planner and senior financial advisor at Vanguard Group.

«People don't think about the HSA as being so beautiful, but it really is,» said Carolyn McClanahan, a CFP based in Jacksonville, Florida, and a member of CNBC's Advisor Council.

That beauty is largely due to the outsized tax benefits of HSAs — which are meant for health-care expenses — relative to other accounts.

HSAs offer a unique "triple tax advantage," said Vargas. Specifically, contributions are tax-free, investment growth is tax-deferred and withdrawals are tax-free if used for eligible medical costs.

That means a saver would generally rarely if ever pay tax on their HSA money, unlike retirement accounts such as a pre-tax or Roth IRA.

Consider this analysis from a new Vanguard report: A $1 investment in a pre-tax or Roth IRA