It took me up until a few years ago to understand the full scope of what Health Savings Accounts (HSAs) can provide and how they can be utilized. The often misunderstood HSA can be just as powerful of a wealth building tool as an IRA in retirement saving and planning. There are many benefits to HSAs that a lot of people don’t know about. That’s why I decided to write this.
To be eligible for a HSA, you must first have a high-deductible health insurance plan (HDHP). An employer, plan participant, or both can contribute money into this account to pay for health related expenses. Here is a link from the IRS, which provides the list of eligible health related expenses
The maximum HSA contributions for 2022 and 2023 are as follows.
2022: $7,300 for a family, $3,650 for an individual, plus another $1,000 for people age 55 and older.
2023: $7,750 for a family, $3,850 for an individual, plus another $1,000 for people age 55 and older.
Your money is not taxed going in, you actually receive a tax deduction to reduce your taxable income for the money you contribute. It then accumulates tax-free growth and is tax-free upon withdrawal (as long as used for eligible health related expenses).
HSA funds can be used for retirement health care costs. You’re able to use the funds for the payment of medicare premiums, COBRA coverage or health care coverage while unemployed. One of the biggest benefits is that HSA funds are eligible to pay for both long-term care insurance premiums as well as long-term care related services.
At age 65, you can take withdrawals for non-medical related expenses and you just have to pay taxes on them. Similar to a 401K or traditional IRA.
If you pay health related expenses out of pocket, keep the receipts and you can pay yourself back/reimburse yourself at anytime. Even 20 or 30 years down the road.
Add this all up and HSAs can possibly be a better investment than traditional or Roth IRAs. That’s the approach it took me up until recently to fully grasp. HSAs can be leveraged as an important wealth building tool that allows you multiple options.
Income limitations apply for other types of retirement plan contributions to be tax deductible. None of these apply to a HSA. Anyone at any income level can fully contribute into a HSA and receive the taxation benefits.
Since you don’t need to take out the money to pay for health expense now, this is a way to get more money into a retirement plan on a tax deductible basis. Then allow it to grow in a tax-free way. So I don’t spend the money. I leave it alone and let it grow.
Max funding a HSA and letting that money continue to grow tax-free adds more compounding power, along with possible tax-free withdrawals to your portfolio. I have my HSA funds invested in a S&P 500 index fund. I treat it as another long-term type retirement account.
Depending on your HSA provider, many allow for you to even invest in individual stocks just like an IRA. My current provider doesn’t but I have started to look at providers that do offer individual stock options.
There are even more benefits that you can use HSAs for beyond what I’ve discussed above. If you haven’t taken the time to research and talk with your accountant or investment professional on HSAs, I would make that a top priority as you roll into your year-end and 2023 financial/taxation planning.
I’ve included some links below for more resources and information on HSAs.
IRS Publication 969 Health Savings Accounts (HSAs)
IRS Publication 502 Medical and Dental Expenses
How HSAs Work, Contribution Rules - Investopedia
Tax Secrets of Health Savings Accounts - WSJ
The Coffee Table ☕
Matt Levine from Bloomberg wrote a 40,000 word piece, The Crypto Story: Where it came from, what it all means and why it still matters. If you’ve wanted to get a better understanding of cryptocurrencies, bitcoin, NFTs, blockchains etc. this is just an excellent read that’s worth the time.
Ben Carlson wrote a good post entitled, In the Markets Nothing is as Dependable as Cycles. He does a good job showing how cycles always come around and no single strategy works forever.
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