Triple Tax Savings? Yes, please.
One account. Three advantages. Long-term impact.
If you’re not taking advantage of a Health Savings Account (HSA), you could be missing out on one of the most powerful tax-saving tools available. It’s often confused with a Flexible Spending Account (FSA), but the two are very different. Only one offers what’s known as triple tax savings.
Let’s break down what that means.
What is Triple Tax Savings?
An HSA offers three separate tax advantages that can add up to significant long-term savings:
Tax-deductible contributions
The money you contribute reduces your taxable income. Whether you contribute through payroll or on your own when filing your taxes, it counts.Tax-free growth
Any interest, dividends, or gains on your HSA investments grow without being taxed.Tax-free withdrawals for qualified medical expenses
You can take money out for eligible health costs, and you won’t pay any tax on those withdrawals.
This makes an HSA one of the only accounts that gives you tax benefits on the way in, while it grows, and when you take it out.
Who Can Have an HSA?
Not everyone can open or contribute to an HSA. You must be enrolled in a high-deductible health plan (HDHP) to be eligible. If your insurance plan does not meet specific requirements, you won’t be able to take advantage of this account.
Why the HSA is So Powerful
If you’re eligible, the HSA gives you much more than just tax savings. Here’s what makes it stand out:
Funds roll over every year. There is no “use it or lose it” rule. Your balance continues to grow.
The account is yours. If you leave your job, retire, or change health plans later, your HSA stays with you.
You can invest the balance. Once your account hits a certain minimum, you can invest it just like a 401(k) or IRA. Many people forget this and let their funds sit in cash. Investing your HSA can lead to much greater growth over time.
You can reimburse yourself later. Save your receipts. You do not have to withdraw the money in the same year you paid for the medical expense. That $300 eye exam from two years ago? If you paid cash, you can reimburse yourself tax-free today, as long as you kept the documentation.
If possible, pay out of pocket and let your HSA grow. Treat it like a retirement account for healthcare. The more you can let it grow now, the more you’ll have when healthcare costs rise later in life.
Healthcare Costs in Retirement Are Real
According to Fidelity’s 2023 estimate, a 65-year-old couple retiring now will need $315,000 to cover healthcare costs throughout retirement. That number does not include long-term care.
An HSA can be a valuable tool to prepare for those costs. If you let the account grow and invest the balance, it can provide a large, tax-free pool of money when you need it most.
Final Thoughts
If you qualify for an HSA, it is one of the most flexible and tax-efficient accounts you can use for medical expenses and long-term planning. Contribute as much as you can, invest the balance once possible, and hold on to your medical receipts.
Need help deciding how to maximize your healthcare benefits? Let’s take a look together. Schedule a consultation today!
