Take Advantage of the 3X Tax Savings of an HSA
Submitted by LWM | Linden Wealth Management LLC on May 28th, 2020
Take Advantage of the 3X Tax Savings of an HSA
Health Savings Accounts (HSA) offer more than just a convenient way to pay for out of pocket medical expenses. They can be the most tax-advantaged way to save for retirement.
Traditional retirement accounts only have two of the three legs of tax savings:
| 401-k | Traditional IRA | Roth | HSA | |
| Pre-tax Contributions | X | X | X | |
| Tax-deferred Growth | X | X | X | X |
| Tax-free Withdrawals | X | X |
As Vanguard shows, HSA's triple tax advantage makes them an extremely efficient way to save and invest:
Using a conservative 4% annual return assumption, Vanguard shows how $1 invested in a traditional or Roth IRA will be worth $1.64 in 20 years. That same dollar invested in an HSA would grow to $2.19, 34% greater. Use a 7% average return, and it's $3.87.
Contribution limits are also generous, especially for families:
| Individual | $3,550 |
| Family | $7,100 |
*$1,000 additional annual contribution for those 55 and older
Theoretically, an HSA for a family contributing over 20 years at 7% would grow to more than $291,000, tax-free, provided you used the funds for qualified medical expenses, Medicare premiums, or long-term care insurance.
Having enough medical costs shouldn't be a problem. A USA Today article estimates the average couple will spend over $285,000 on medical expenses in retirement. Plus, you can withdraw funds in the future to reimburse yourself for prior costs incurred over the life of the account. Just keep a record.
We help investors set up HSA's through HSA Bank and, if desired, invest the funds through TD Ameritrade.
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*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.
