This tip is not for everyone, but if you are happy using a high deductible health plan, then you have access to a Health Savings Account or HSA. Further, if you have excess savings and you have cash piling up in your savings account, you should be using this accumulation strategy with your HSA.
Maximize the Use of your HSA
Fund your HSA and do not use the money for current healthcare expenses. When you put money into your HSA you get a tax deduction which basically means you haven’t paid tax on that income. The idea is that you can then use these savings for medical or dental services without ever paying income tax on these funds.
The Important Part
There is no time restriction between when you have the medical expense and when you pull money from your HSA to pay for that medical expense. So, you can build up funds in your HSA and even invest them and have them grow over time. Then, later in life when you need the funds, you can pull them out and apply them to any health expense that occurred going all the way back to when you put money in.
This means you can keep all your medical receipts over the years, maybe in your personal cloud, and then apply those receipts a long time from now in retirement as you pull money out.
Benefit of Using an HSA
At the end of the day, the HSA acts as a supplemental retirement account that’s even better than your 401k because you NEVER pay income tax on these funds. This is one of the few areas of the tax code that actually allows you to get FREE money and we like free money.
Again, this strategy is only for those people who are happy with a high deductible plan and have extra savings to put into the HSA without using it for current medical expenses. If that’s you, then I urge you to consider this strategy to get your FREE money.