An HSA might be the best tax-advantaged retirement account available, but very few people are fully utilizing them. It works almost exactly like a Traditional IRA, except you can also do tax-free withdrawals for qualified medical expenses at any age, making it more flexible and reducing your medical costs and taxes.
A lot of people don’t know that you can actually invest inside of one too. I use mine partially to pay for medical expenses, but most of the money is invested in a target date index fund to grow for decades to come!
Note that you can only open one if you have an “HSA Compatible” health insurance plan. You would need to check with your health insurance provider to see if you qualify. Often times opening an HSA compatible plan is the cheapest option and comes with the bonus of an option to contribute to this cool tax-advantaged account! However, I wouldn’t recommend changing your health insurance just for access to this account. In the big scheme of things, getting your health insurance needs correctly taken care of is more important than the tax break offered by this account.
For 2022 the max contribution is $3,650 for an individual or $7,300 for a family. Amazon has a cool new feature that tells you if an item you’re buying is “HSA eligible”. The other day I bought sunscreen and Amazon let me know that according to IRS rules you can spend your HSA money on sunscreen. That means money goes tax free into your HSA, then you buy sunscreen tax free and never pay penny of income tax! You can’t get a better deal than that on taxes!
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
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