Become an HSA Millionaire

Many of us have heard of an HSA account when it is time to choose our health insurance plans. However, I’m not sure that all of us understand the valuable benefits that come with having one.

Before I begin, you need to be on a high-deductible insurance plan to qualify for an HSA account. If you are qualified for an HSA account, here is how you can reap the benefits.

First, this account acts like a traditional checking account, where you can contribute up to $3,650 pre-tax (the 2022 contribution limit) for medical expenses.

However, you don't need to actually spend the money at all. You can use the money for medical expenses if you like, but if you want to maximize your returns, you should invest it instead.

That is right, an HSA can be used as a retirement account just like a 401(k) or Roth IRA, except it is better tax-advantaged. I will illustrate that in the following examples.

Let’s say that you have an extra $3,650 that you want to invest every year at a 10% return for 35 years, assuming a 20% tax rate:

Example 1: You decide to invest that money in a taxable brokerage account. $3,650 will become $2920 after taxes each year. In 35 years, you will have $937K. After taxes, you are left with $750K.

Example 2: You decide to invest that money in a Roth IRA. $3,650 will become $2,920 after taxes. In 35 years, you will have roughly $937K tax-free.

Example 3: You decide to invest that money in a 401(k), with no employer match. The $3,650 will not be taxed, so you will contribute the full amount but pay taxes on your withdrawals. In 35 years, you will have roughly $1.17 million. After taxes, you are left with $937K.

Example 4: You decide to invest that money in an HSA. $3,650 will not be taxed, so you will contribute the full amount. In 35 years, you will have roughly $1.17 million tax-free.

The great thing is that once you turn 65 years old, you can withdraw all that money from your HSA for any reason, even non-medical expenses, without any penalty or tax.

Have a great week!

Momo

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