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Health Savings Account: How an HSA Fits into Our Financial Plan

For a while I was very content investing for our family’s future with my workplace 401k and a Roth IRA. These two tax advantaged vehicles were driving our family toward a very comfortable retirement.

A few years ago, I discovered another stealth retirement investment option called the Health Savings Account (HSA). Just like the 401k and the Roth IRA, the HSA also has many tax advantages. 

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In fact, it’s gained a lot of attention for its “triple tax advantages.” Here they are:

  • Pre-tax contributions (with your employer sponsored plan) or tax deductible contributions if you’re employer does not have an HSA option
  • Tax-free withdrawals as long as you use the funds for qualified medical expenses
  • Tax-free growth when the money is saved or invested

For a period of time when our income was higher, our family maxed out this HSA option. It helped us to stash away some money for the near term and the long term.

To keep an eye on our HSA, we used our Personal Capital financial dashboard. These free and secure money-management tools allow you to track all of your financial accounts in one place, monitor your cash flow, and prepare for long-term goals like retirement.

With the money saved and invested in our HSA, here’s how we plan to use it. Hopefully this will give you some ideas on how an HSA can benefit your family. 

Save for Everyday Health Care Expenses

Our HSA account has been a convenient way for us to pay for everyday health care expenses like copays and doctor visits. 

Not only are we able to withdraw from the account tax-free, it helps us to actually have money set aside. Before the HSA, an unexpected doctor visit would pop up and oftentimes, we’d have to use our emergency fund to pay for it. With our HSA, we’re covered!

To make the payment process easy, we use our HSA debit card. When it’s time to pay for our medical services, we just provide the debit card in person or over the phone and we’re all set. The funds come out of our HSA savings account just like our regular bank account. 

With the recent passage of the CARES Act, the amount of qualified medical expenses has extended quite a bit. Over-the-counter medications, pain medications, feminine hygiene products and much more are covered. Here’s an exhaustive list of what’s deemed a qualified medical expense for your HSA.

Since the list of “what’s covered” keeps growing, we’re encouraged to keep saving money in our HSA. That way, we’re prepared for the everyday purchases and can save on taxes at the same time.

Invest for Long-Term Health Care Costs

Outside of the everyday health care expenses, we’re well aware that the cost of health care is only going to grow in the future.

According to a study by Vanguard, a typical 65-year-old woman can expect an annual expense of around $5,200 (premiums and out-of-pocket). If that’s the cost today, we can’t even imagine where it’ll be by the time we want to retire 25 years from now. 

That’s why we’re using our HSA to invest for our future health care costs today. This will allow us to not only keep up with the rising costs of health care, but we’ll be able to take advantage of growth in the stock market as well. 

Even after a few years of investing, it’s amazing to see how our balance has grown. At this rate, we should have around $200,000 by the time we’re 65 years old. This will allow us to cover a large portion of our annual health care expenses. 

Will it be enough to cover all of our health care expenses? Maybe. Maybe not. Since life and the cost of health care can be unpredictable, I’m glad we’re at least preparing. 

Enjoy the Leftovers for Retirement

Let’s say we’re blessed with happy and healthy years from now until our retirement. With the HSA, we’ll have a large amount of money waiting for us. This will help us feel covered for potential health care expenses. 

And what if we want to use it for non-health care expenses? Well, if we wait until age 65, we can use our funds for anything we want with no penalty. We’ll just have to pay the income taxes.

Using the HSA this way works similar to a Traditional IRA or 401k. You don’t pay taxes today, but you pay them when you want to use the money in retirement. 

I hope we’ll be in this position, but more than likely, we’ll need these funds for health care expenses. Either way, it’s nice to know that the money can still have a use if we’re super healthy. 

More reason for us to take care of ourselves every day, right?

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Personal Capital compensates Andy Hill for providing the content contained in this blog post. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Andy Hill is a husband and father of two kids. His personal finance goal? To give his family the best life possible and strengthen their family tree for generations to come. In 2016, he launched Marriage, Kids, & Money, a blog and podcast about young family finance. In 2020, he and his wife achieved a personal goal of becoming millionaires in less than 10 years. Now, they thrive on helping others do the same.
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