Health savings accounts offer a rare triple tax advantage: contributions go in tax deductible, funds grow tax free, and qualified withdrawals come out tax free. No other account offers all three benefits at once, which makes the HSA one of the most efficient savings vehicles available for those with a high deductible health plan.
Why the Triple Advantage Matters
Most tax-advantaged accounts offer a benefit on one end or the other. A traditional retirement account offers a deduction going in but taxes withdrawals later. A Roth account taxes contributions but lets withdrawals grow tax free. An HSA offers both of those advantages at once, plus tax-free growth in between, as long as the funds are used for qualified medical expenses.
Treating It as an Investment Account, Not a Spending Account
Most people spend their HSA funds each year, using the account much like a checking account earmarked for medical costs. But investing the funds and letting them grow can turn the account into a long-term healthcare reserve for retirement, when medical expenses tend to be highest. Left invested over many years, the balance can grow substantially, all while keeping its tax-free status for qualified withdrawals.
The Receipt Strategy
Saving receipts along the way also opens the door to tax-free reimbursements down the road. Because there is no deadline on when a qualified medical expense must be reimbursed, someone can pay out of pocket for a medical cost today, let the HSA continue growing, and reimburse themselves years later, pulling out that same amount completely tax free.
Have you thought about investing your HSA instead of spending it each year? Have a question or want help understanding your options? Contact us today to schedule a complimentary Q&A with one of our team members.
