The Investment Scientist

The Most Powerful Retirement Saving Vehicle Few People Know About

Posted on: December 30, 2022

I am talking about an HSA – the Health Saving Account. Why is it the best? Because it is the only saving vehicle that gives you triple tax benefits. The money goes into the account pre-tax, the money inside can grow tax-free, and all health-related qualified withdrawals are tax-exempt. 

However, not everybody is qualified to open such an account. Only folks who have an HDHP – High Deductible Health Plan can contribute to such an account, and the contribution limits are relatively low. For 2022, the limits are $3650 for an individual or $7300 for a family; for 2023, the limits are $3850 and $7750 respectively. 

Who should have an HDHP in order to have an HSA? Folks who are young or very healthy. In my case, I am not that young, but I am super healthy and I plan to live a long life, so an HDHP makes sense for me. Not only can I pay a lower health insurance premium, but I can also open an HSA and begin to save for my future healthcare needs. 

Is an HSA that useful with these pretty low contribution limits? Let’s take a 35-year-old man, for example. Assuming he is like most others his age, he will most likely only need to spend substantial money for healthcare after age 75. In other words, he has 40 years of saving ahead of him. Assuming that the IRS increases the contribution limits by $100 a year for a single account – for simplicity, we won’t consider him forming a family for now – If he does not touch the money at all, here is how his HSA account will grow assuming an 8% return.

Not too shabby to have $1.4mm tax-free money set aside just for healthcare! There are plenty of educational materials on the internet and on Youtube that explain how to get the best benefits from an HSA. I hope this article serves to alert you to its potential. 

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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