Most people think that HSAs can only be used one way – for medical expenses. So they fund it during the year and as soon as they get a doctor visit they spend it all, thinking if they don’t, it’ll be held hostage in the account.
But the HSA, if maximized, can do so much more. It can provide tax-free saving for retirement, tax-free saving for medical and dental expenses for you and your dependents and be a money source in an emergency. In addition to saving you on taxes every year.
So what strategies should you use to fully exploit this triple tax-advantaged account? We’ll tell you now so you can start saving you on taxes, take home more money and set yourself up for financial security in the future.
Max out your HSA
You can only put up to $3400 in your HSA as a single person, or $6750 as a family (2017 figures) each year. Once you hit that number it’s all over, and you can’t add any more. So you’ll want to strive to milk every free tax dollar you can out of it while you have time. It might sound like a tall order, but remember this is before tax dollars.
Using this HSA calculator you can calculate how much you save by saving in pre-tax dollars. It could be as much as $750 or more based on your tax bracket by using an HSA so don’t let the sticker shock of how much to save fool you.
So what do you gain from maxing out? The more tax-free you contribute and allow to accumulate in the account, the more money available to cover the medical expense for now, but more importantly in the future. $34000 isn’t much when most deductibles are $2000, but $3400 if saved over 3 years, is a much more robust figure – $10,200 to be exact. Now that can actually be useful.
Meet all the requirements for company incentives
A major benefit to the HSA is the company incentive or encouragement for using an HSA. It’s usually money in the form of a company match to a set amount, or money for meeting health metrics like blood pressure, BMI, cholesterol etc.
So you’ll want to know how much money you will be given as an incentive and what you need to do to get it. This information is available from your insurance provider or HR insurance documents.
The incentive is key to making this plan robust because helps lower the amount you need to contribute to meet the maximum allowed and again, it’s free tax-free money. So instead of having to save $3400 a year, you might only need to save $3000 a year out of your pocket because your company gives you $400 to add to your account.
So what do you gain from meeting the requirements? Free contributions by your employer to your HSA for you. That could be an extra 500 bucks given to you each year as a reward for healthy living. Giving you, even more, money (that you didn’t have to save) in your account.
Preserve your HSA funds and make it roll over
Because there is a limited amount that you can contribute each year it takes some time to have enough funds to help out in the event of a really big medical issue. So in order to accumulate a ‘decent’ size balance, you will want to pay for your medical expenses out of pocket and allow your HSA funds to accumulate for as long as possible.
I know you’re thinking “why am I paying out of pockets for my expenses, that’s what my HSA is for!” And yes, that is what your HSA is for but let me ask you this. Do you think you will be healthier now, when you are young, or when you are older? You are much less likely to NEED your medical funds now and are working where you have the income to pay the bill.
We’re going above the current situation and using our HSA for building long-term wealth, and that means a little sacrifice today for the security and happiness in the future. Don’t go overboard. Our current happiness is important too, so if you have a medical expense work to get it lowered as much as possible using these tips.
So what do you gain from taking the money out of pocket? We’re all getting older every single day. And even though its a great time to be alive because folks are living longer, our bodies slow down and decades of wear and tear start to show. It’s unlikely that you will be as energetic, young and spiritedly as you are now when all your hair has turned gray.
And considering that health care if a very large expense it’s worthwhile to carve off some money that you can use for covering those soon to come expenses. And the bonus is if you are blessed to be a 100 % healthy and spiritedly 65-year-old, then you can access the money completely tax-free to spend on massages, hair appointments or some arm candy – whatever that might be.
Keep ALL your receipts
Any medical bill you pay, for you, your spouse or your family (anyone you can put on your taxes as a dependent) scan a copy and save it either on your computer, in the cloud, or your HSA vault for future claiming.
If you stuffed them in the abyss of your purse already you can reach out to your medical provider and ask for another copy of your bill, or an explanation of benefits or a receipt showing it was paid.
So what do I gain from keeping my receipts? A disaster fund if you need cash – I told you earlier to pay your medical expenses using these techniques to lower your bill and keep the money in your HSA. Well, life happens, and sometimes that doesn’t work out the way you want. Like at the end of the year when you crash your car and need a new one asap (yep, that has happened to me). Keeping your receipts allows you to pull the money out of the HSA AT ANY TIME (next week, 2 years or 15 years later as long as the expenses incurred while you had a high deductible plan and the HSA)and you can take that money to do whatever you need since you paid your medical bill out of pocket earlier. This simply counts as a reimbursement.
Bonus Tip: Self-Directed HSA
If your company allows, you can bypass using the company provided HSA and decide instead to invest your HSA funds in the stock market or in a self-directed HSA. This allows you to have all the benefits of an HSA AND allows you to accumulate without restriction. Let’s say you like to invest in fine wine and have a self-directed HSA.
You can use the funds in the self-directed HSA to purchase your fine wines for $1000, and any earnings made from the sale of those fine wines (say $50,000) added to your HSA as tax-free earnings. your HSA now has $50,000 – using a regular HSA might have taken several years to accumulate that amount, but with the self-directed HSA you were able to grow beyond the confines of the stock market. Pretty badass huh!
Many folks don’t like HSA’s because they remember the old of traditional medical insurance. And under certain conditions, I’d agree. But if you already had an HSA or the plan works out to be favorable, now you know the strategy many people use to make sure they get the best out of the account.
Taking advantage of the all the tax-deferred accounts available to us is a fast way of building long-term wealth.
So what are you waiting for? Are you going to give the government back the tax-free benefit they gave you or are you going to take advantage of this triple tax benefit?
Let’s get rich, you can do this!