Introduction:
Popularity of HSA (Health Savings Account) has increased manifolds in recent years. According to a popular study by Voya Financial, almost 75% of Americans would have benefitted by switching to HSA as their health care plan. HSA’s are used in tandem with a low-premium, high-deductible health plan.
But very few know that HSA could be a terrific tool for wealth creation and even generational wealth transfer too.
HSA offers a trinity of tax benefits – not only the contributions are tax-free, the withdrawals are too, on both original investment & the earnings. The only constraint is that you can use it only for qualified medical expenses.
And there’s boat load of other advantages too –
- Most employers offer an yearly incentive to use HSA account – 700$ on an average, which could lead to a sizable gain if invested well.
- You can allocate a portion of HSA money into an investment account and let the gains grow tax-free for qualified medical expenses.
- Once you reach 65 years of age, you can start treating your HSA account as any other tax-deferred retirement account like 401K or IRA. That means you can withdraw the money without penalty for any expense, not just medical. You would still get taxed though for any non-medical expense, just like 401K or IRA.
Wait, there’s more!
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The final HSA benefit: HSA can be transferred to the kids (or any other beneficiary) as well. Note that it loses the tax benefits in that case & all HSA money counts as taxable income for the non-spousal beneficiary.
Not impressed, just yet?
Looking at HSA benefits in numbers –
Assuming 17% as your effective tax rate, if you contributed 7,000$ yearly to HSA as tax-free amount for over 20 years which grew at a 5% rate vs same amount & the earnings being post-tax, you would have accumulated 231K vs 177K. ~ 50K+ of savings just for taking the HSA route.
Further Reads:
Tip: Before you go switching to your employer’s HSA plan, please check their web portals to ensure your primary doctors are in-network, especially if you are using a PPO plan which almost always has a larger in-network pool.
That’s it. And here goes the customary Unruffled Life Pro Tip:
One of the simplest ways to be stress-free is to reduce clutter, un-needed things. Pick a room, a wardrobe, garage, drawer with a mission to organize & toss out a few things you don’t need anymore. Checkout Goodbye, Things – a widely eminent book on the topic of minimalism topic.
Disclaimer: The intent behind this post & any other material on this portal is to help our readers cultivate total wealth of health, money, time & social life (in that order) – essentially amplifying the joy and contentment in life. None of the content substitutes professional financial, tax, legal, health, home care or any other kind of advice. Please perform your own due diligence before acting on any of the ideas & material shared here.
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