Never Pay Taxes! Boost Your Savings and Never Pay Taxes with a Health Savings Account

No one can predict markets or taxes, but based on the recent “budget” released by the President coupled with the seemingly endless spending by the Federal Government, it appears highly likely that we are in for some significant increases in the coming years!

Based on this bold prediction, there is no better time to highlight the benefits of the greatest and only tax-free investment account that exists, the Health Savings Account (HSA)! The HSA is the best retirement account that no one takes advantage of. Let’s quickly review what makes this account truly unique and then discuss a few drawbacks:

Benefits:

1. Tax-Free: This is the only account that I know of which is truly tax-free. Your contributions are tax-deferred, can be invested, and then all the money can be used tax-free for qualified medical expenses. In other words, it’s like investing in a pre-tax 401k with the backend benefits of a Roth IRA. The best of both worlds!

2. Free money: Most employers will also include some free money incentive. For example, my previous employer would contribute 50% of the maximum allowable amount ($7,750 for a family and $3,850 for self-only coverage in 2023) each year.

3. Investment options: Investment options will vary based on your provider, but they typically include a host of low-cost index fund options and some allow you to invest in any ETF, mutual fund, or individual stocks. For a family who can afford to max out this account you could have approximately $450,000 tax-free after 20 years!

4. Back-up Emergency Fund: Although this money should be invested for the long-term, if you save your receipts from current medical expenses, it can also be used as a back-up emergency fund. In other words, if you save your receipt from the contact lenses you bought today, you can withdraw that money in 5 or 10 years to reimburse yourself. Ideally, you save your receipts and then leverage this account tax-free in retirement, but serving as a back-up emergency fund is a second feature. Either way, save your receipts!

Drawbacks:

1. Out of Pocket Expenses: The benefits of the HSA comes with the decision to choose a high-deductible health plan, which requires you to pay for non-preventative medical bills primarily out of pocket up to a certain amount. If you can afford to do so and especially if you are young and reasonably healthy, this shouldn’t be a deterrent, but something to be aware of.

2. Account Fees: There are typically account fees, although usually minimal, and will vary by provider. If you have an HSA with a previous employer you should check if there are account fees, such as my HSA below, and roll it over to a free account at a different provider:

Summary:

In summary, an HSA is the only tax-free account which exists! Take advantage of it by signing up during your annual enrollment period through work and don’t be Peter Parker!

Disclaimer: The information in this post is provided for your convenience only and is not intended to be treated as financial, investment, tax, or other advice. The information is intended to be educational and is not tailored to the investment needs of any specific individual.  It is also not intended to be relied upon as a forecast and is not an offer or solicitation to buy or sell any securities or to adopt any investment strategy.  The opinions expressed are those of the author.  Reliance upon the guidance and information in this presentation is at the sole discretion of the individual.