HSA - The Ultimate Tax Benefit You May Be Using Wrong

Do you have a Health Savings Account or access to one through a different health plan? Most people do. Are you contributing to it? Most people that have one are. Are you using it now when you have medical needs? A lot of people are. WRONG ANSWER!!!!!

This is simply a case of you don’t know what you don’t know!

If you have an HSA, you are still working and you are using it to pay for medical expenses now; you are missing the boat entirely! An HSA could be the neatest thing since sliced bread—tax wise anyway.

You probably know that you get to deduct the amount you contribute to it from your taxable income and you’re probably aware that the money comes out tax-free when you use it for qualified health expenses. BUT…

Did you know you can grow your HSA just like you grow your retirement account? The earnings and growth are tax-deferred and the money is distributed tax-free for qualified health expenses in retirement the same way it is now.

To sum it up - tax deduction going in, tax-deferred growth, then qualified tax-free going out! It is the only savings vehicle you have for retirement in which you virtually never pay taxes if you use it correctly. And, by golly, health expenses are not a walk in the park during your retirement years. In fact, this is one of the largest areas of concern for retirees today.

So, why in the world would you not want to take advantage of this? The time value of money is possibly the greatest investment you have…period!

In 2023, a family can contribute up to $7,750 to an HSA. This is even higher if you are over age 55.

If you were to contribute this amount over the next 20 years, you would save $155,000. If that were to grow at 8%, you would have almost $355,000 at that time. Obviously, 8% is not guaranteed, but this can give you a picture of how it works.

Oh…and what if you saved the tax savings? Let’s just say you are in the 22% bracket. That $7,750 contribution could save you about $1,705 in income taxes. This would land you an additional $78,000 or so if this savings also grew at 8% for 20 years.

That would mean a total of $433,000! That isn’t necessarily chump change.

When we ask about access to an HSA, we often find that people have the access, but are worried about changing their health plan. Most of the time, there isn’t a lot of change. If you are on a PPO, you can probably stay on a PPO. There might be some other small variances, but no matter, it’s worth doing your homework. Most of the time, the small variances end up not being an issue.

Also, we find that people don’t know how to get the money invested for retirement. Some HSAs offer this option, but most don’t. This is not a problem! It is simply a matter of logistics. You can link your HSA to other HSA accounts and get the job done.

September is the month that a lot companies renew their benefits packages. Take a close look and talk to your financial advisor about your unique situation. This powerful tool is not one you want to delay another 12 months if it makes sense for you.