Shot of a young family playing together on the lounge floor at home
getty
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.
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.
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 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 Fidelity, a typical 65-year-old can expect to spend an average of $157,500 in medical and healthcare expenses throughout retirement. If that’s the cost today, we can’t even imagine where it’ll be by the time we want to retire 20 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 could have around $200,000 by the time we’re 65 years old. This will allow us to cover 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 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 HSA 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 HSA money can still have a use if we’re super healthy.
That’s one more reason for us to take care of ourselves every day.