Health Savings Accounts

A Health Savings Account could be a good choice to help you save money. It allows you to use tax free dollars for your HSA eligible medical expenses.

You can fund it every year up to the HSA contribution limits. If your HSA is part of your employer's health insurance and you're lucky, your employer could even kick in a few bucks on top of your contribution.

Unlike similar employer-run Flexible Spending Accounts, however, all unused amounts roll forward to future years. This could come in handy come your retirement years.

Don’t worry about accumulating too much cash. According to a Fidelity® study, on average a couple reaching age 65 in 2016 will need in excess of $250,000 during retirement for medical expenses not covered by Medicare.

Tax and Penalty Free Withdrawals

Tax free money from your HSA can be used to pay:

  • your own medical expenses
  • spouse’s medical expenses
  • long term care expenses
  • long term care insurance premiums
  • Medicare premiums A,B & D (once you reach Medicare age) 

Alternative to Long Term Care Insurance

Then there’s the potential need for long term care. Nothing can ravage an estate faster than the need for long term care. According to a 2016 Genworth® study, private room nursing home care runs six figures a year in most states.

An HSA can act as an alternative to the sky high cost of long term care insurance. Think of it as insuring yourself. Remember, those thousands of dollars of premium payments are not refunded by the insurance company if you don’t need long term care.

Requirements to Contribute to an HSA

You can’t just open up an Health Savings Account and automatically get all of it's benefits. You must first meet the following requirements:

  • covered by a high deductible health plan (HDHP)
  • not covered by another health plan
  • not claimed as a dependent
  • not covered by Medicare

Is a HDHP the Right Choice?

This strategy isn’t for everyone. A high deductible health plan means your share of the medical insurance premium will be much lower than other plans, but your out-of-pocket costs will be higher if you need care.

A lower deductible plan may be more affordable if you require more healthcare during the plan year. Even though you pay a higher premium, your out-of-pocket costs (deductible, co-pay, and/or coinsurance) will be lower when you receive services. (Visit HMO vs PPO to brush up on the different types of insurance plans.)

Want to Maximize Your Earnings?

A Health Savings Account is like an IRA or 401(k) on steroids. You’ll earn a higher after-tax rate of return because of the numerous tax advantages. Invest your contributions and grow rich!

Now that you know how a Health Savings Account works, I want you to consider another strategy: Using your HSA as a supercharged investment vehicle for retirement.

Think of a Health Savings Account (HSA) as an IRA or 401(k) on steroids. It combines the tax saving and income generating characteristics of traditional and Roth accounts.

With a pre-tax or traditional contribution, you get a tax deduction, but you’ve got to pay tax on both the contribution and earnings in retirement. With a Roth contribution, you get tax free earnings but no tax deduction.

With an HSA, you get the advantages of both and then some: A tax deductible and totally tax free contribution (if made via payroll deduction), plus tax free earnings! That’s why, everything else being equal, you’ll earn a higher after-tax return in a Health Savings Account than in any other account.

The idea is to leave the money in your Health Savings Account alone and pay most or all of your medical expenses out-of-pocket throughout your working years, all the while investing those yearly HSA contributions.

Do a good job with your medical record keeping. Those receipts act as tickets to future tax-free withdrawals from your HSA, so keep them in a save place.

Highest After-Tax Rate of Return

A Health Savings Account gives you the ability to build your wealth faster than any other tax-advantaged investment vehicle available. That's why it should be your number one investment tool for the future.

So why not treat your Health Savings Account like a supercharged investment vehicle for retirement?

If you started saving and investing the maximum HSA contribution limit for 2017 and every year thereafter until your projected retirement date, you could accumulate some serious bank:

Projected Retirement Date

2020

2025

2030

2035

2040

2050

HSA Balance - Single

$15,979

$47,208

$96,873

$174,229

$292,970

$745,160

HSA Balance - Family

$31,722

$93,721

$192,322

$345,896

$581,632

$1,479,361

(Assumes the maximum contribution amount was made starting in 2017 and every year thereafter until your projected retirement age, a 3% annual increase in the contribution percentage, and an 8% compounded yearly return.)

Maximize Your Earnings

If you’re relatively healthy, willing to take a more proactive role in your healthcare, and make enough to pay some or all of your expenses out-of-pocket, you just might get as excited about this strategy as I am.

That’s why the first money I invest for the year is through my HSA. I literally wrote the book on this strategy back in 2013.

Updated for 2017

My maximize your earnings strategy has really caught on! More and more folks are realizing it's the smartest way to save for retirement.

Even if you decide a high deductible health plan and HSA isn't the right choice for you, buy my book to better understand "insurance speak." You'll be glad you did once open enrollment time rolls around again, and you're forced to choose which health insurance plan to go with for the next year.

I update all my business books at least once a year to reflect these myriad changes. That's my job: To educate and inform with the most up-to-date information available.

Invest a few dollars into your financial future right now and purchase Maximize Your Earnings with a Health Savings Account now at Amazon.