As a certified financial planner (CFP), I have witnessed the impact that strategic financial planning has on individuals’ lives. When I sit down with prospective clients, whether they have a self-managed portfolio, or their portfolio is under another professional’s management, I often see an element that’s overlooked, causing a missed opportunity. I’m talking about Health Savings Accounts (HSA). I believe some folks don’t have a solid understanding of how these accounts work and their impactful benefits.
There are benefits to using an HSA at almost every preretirement age and if you’re able to max your annual contributions and manage to not touch it until age 65, it can be a total game-changer. Here’s why:
Triple Tax Advantages: Not only are your contributions tax deductible reducing your yearly taxable income, but the funds within your HSA grow tax free and withdrawals made for qualified medical expenses are entirely tax free too. According to Fidelity Investments, in 2022 on average a 65-year-old healthy couple will spend roughly $315,000 on healthcare throughout retirement. That’s roughly $157,000 per person and with the effects of inflation this number will rise yearly.1
Long-Term Investment Potential: Many look at HSAs as a way to fund their current medical expenses. Many fail to recognize the long-term investment opportunity that’s available. Unlike a Flexible Spending Account (FSA), there is no “use it, or lose it” rule so you can max your contributions and leave them to grow. Making early contributions gives the funds a longer investment horizon.
The Power of Compound Growth: Just like other investment accounts, you have the option to invest in mutual funds or exchange-traded funds (EFTs). Any growth or income from these holdings will be reinvested potentially leading to exponential growth.
Offset Rising Healthcare Costs: We talked about inflation and the shocking estimates of healthcare expenses for retirees. The compound income we just addressed can help combat the rising impact of inflation giving you a safety net knowing you can pay for your future healthcare when you’re no longer working.
Flexibility and Portability: With the added tax benefits, no maximum yearly rollover amounts, and the ability to invest the funds to grow for the future proves HSAs are more flexible than other retirement accounts but moreover there’s a portability factor. Unlike some other retirement accounts, HSAs are not tied to a specific employer. Even if you change jobs or become self-employed, your HSA remains intact allowing continuity to maximize potential growth.
No matter where you are in your financial journey, if you want to take a deeper dive into HSAs, I would be happy to meet to discuss further!
Integrated Financial Partners does not provide legal/tax advice or services. Please consult your legal/tax advisor regarding your specific situation