There aren’t many free lunches in healthcare, tax planning or investing. The Health Savings Account (HSA) comes pretty close. Designed to help you save and pay for medical expenses, HSAs are an example of a major investment and tax benefit hiding in plain sight. Less than 15 percent of those eligible use them. Do you?
Established in 2003 by President Bush, HSAs are leading the way in consumer-driven healthcare. These plans allow you to put money away tax-free to be used for medical expenses at your discretion.
HSA adoption has been steady but slow, with approximately $42 billion in HSAs in 2017. Anecdotal research suggests about five of six eligible adults have not opened HSA accounts.
Here’s how they work:
- HSA contributions are tax-deductible, and there’s no tax on distributions used for qualifying medical expenses
- Funds roll over and accumulate every year, acting as an effective long-term investment vehicle
- They are owned by you, not by your employer
- You can open one individually, or through your employer (Max and I did them individually because it is so simple)
- They give you choice – you choose the treatment and the reimbursement without a gatekeeper
Furthermore, you don’t need to spend the money on healthcare. You can let your account grow tax-free to age 65, after which you can spend it on anything without penalty. Consult your investment advisor for best choices. If you have tax questions, call your accountant.
Anyone can have an HSA. Call or email us if you would like to find out how we did it.
The IRS rules
Health accounts were created inside the tax code. The Internal Revenue Service determines what can be reimbursed and what cannot. Examples of eligible expenses are acupuncture, diagnostic tests, dental treatment and physical therapy. Non-qualified expenses include plastic surgery and health club dues. See IRS publication 502 for the complete list.
Like other private retirement accounts, there are limits on how much you can contribute each year. The 2018 contribution limits are $3450 for individuals $6900 for families. Contribution limits have been going up 3 percent every year. After age 55 you can add an extra $1000 per year.
HSA more, worry less
Your HSA contributions add up. By contributing every year, you can save $60k in taxes over 20 years. At the same time, even with a modest 5 percent return, you can build your HSA account to $250k. (With many options for investing your HSA, you may even do better than 5 percent.)
Health care expenses are one of the biggest financial worries in retirement. HSAs increase the amount of dollars available for medical purposes, before and after retirement. Think about it…what would it be like to have an extra $250k to spend on your health where and when you want to?
You may enjoy reading this article on Max’s 7 C’s because it also discusses money strategy.
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.