How I Plan to Crush our HSA

I love having a Health Savings Plan (HSA).  A HSA allows me to relax a little bit about rising health care costs in a way that I think everyone should consider.  Anytime we have out of pocket costs, we try our hardest not to use the money sitting in our HSA. Why you ask? Well, like any investment the longer the money sits in there, the longer it has to compound.  Many people are shocked that I think of our HSA as an investment.  This is most likely because in the past they had a Flexible Spending Account (FSA).  An FSA is NOT flexible.  It is a use it or loose it kind of account and in my opinion, it should be removed as an option.  I still recall the Christmas of 2007 when I bought every family member cough drops, laxatives and Tylenol for Christmas so I wouldn’t lose $300 in contributions.  I resolved to never put money in that account again.  I would rather be taxed on my out of pocket, then lose my contributions on December 31st.

We have a high deductible family plan which allows us to contribute $7,000 (2019) this year. Once you have a minimum of $1,000 you can put your pre-taxed contributions to work for you.  We invest our HSA contributions into VFIAX (Vanguard low-cost index fund).  The AMAZING thing about an HSA is: it’s pre-taxed contributions, you are not taxed on the growth, nor are you taxed when you remove it.  This is as long as it’s for health expenses. So, if I can cover our healthcare expenses in 2019 out of pocket, I am not pulling money from this account for any of my health expenses.  Instead, I print the receipt and lovingly place it in a file folder called “FI HSA”.  I will continue to monitor any tax changes to assure that I can still use those receipts in the future to pull out money when I need it.  If you are lucky enough to make it to age 65 without using your HSA, you can start withdrawing money from it. You will be taxed at a regular rate but you will not have a penalty. So basically, if you have a medical emergency, you have emergency money, if you don’t have a medical emergency you have retirement money waiting for you at age 65.

If we have a catastrophic illness it will be amazing to have an account dedicated to our health expenses when we need it the most.  Pulling out a $50 co-pay here, $100 medication co-pay there, will not give me the security that a fully funded HSA will give me in the next 5 to 30 years.  If you can afford to fund your HSA, I highly recommend that you do it! You can’t afford not to.

HSA explained in more detail here.

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