The most misunderstood investment account out there: the HSA.
Most people think a Health Savings Account is a place to park money for copays and cough drops.
Plot twist: it may be the best tax deal you’ll ever get
If your employer offers a high-deductible health plan (HDHP) with an HSA, ask yourself:
- Does my employer put money in my HSA? (Free money. Always say yes to free money.)
2. Can I cover the higher deductible from cash flow or savings?
3. Do I have enough surplus in my cash flow to I max it out next year?
Already in an HDHP? Make sure your HSA is actually invested.
So why are these so powerful, yet so overlooked?
- The triple tax threat
- Contributions go in tax-deductible
- Growth is tax-free
Withdrawals for qualified medical expenses are tax-free
Taxed zero times. I don’t know any other account that pulls that off.
Are you invited to the party?
You’re eligible if you:
- Are covered by an HDHP
- Have no other health coverage (some exceptions)
- Aren’t enrolled in Medicare
- Can’t be claimed as a dependent on someone else’s tax return
How we play it at Financial Zen
We treat the HSA like a stealth retirement account. If you can pay today’s medical bills from your regular cash flow, leave the HSA alone.
Invest it and let it grow.
The big payoff: in retirement, you can use your HSA to pay Medicare premiums tax-free.
Your HSA game plan:
- Max out your annual contributions
- Pay current medical costs from other assets
- Invest the balance
- Save your receipts. You can reimburse yourself tax-free later for qualified expenses, even years down the road.