What is an HSA?
A Health Savings Account is a tax-advantaged account available to people enrolled in a qualifying High Deductible Health Plan (HDHP). The 2024 contribution limits are $4,150 for self-only coverage and $8,300 for family coverage, with a $1,000 catch-up at age 55+. Contributions are tax-deductible (or pre-tax through payroll), investment growth is tax-free, and withdrawals for qualified medical expenses are tax-free. After age 65, you can withdraw for any reason and just pay ordinary income tax, the same treatment as a Traditional IRA, with the medical-expense exemption still available on top.
A 30-year-old maxes the family limit of $8,300 a year and invests it in an S&P 500 fund inside the HSA. At ~10% returns over 35 years, that’s a $2.25M pot at age 65. Pay medical bills out of pocket along the way (save the receipts) and you can reimburse yourself tax-free decades later for those same receipts. Effectively, the HSA becomes a stealth Roth IRA with bonus medical-expense flexibility.
Treating the HSA as a checking account for current medical bills. Spending the money instead of investing it wastes the most powerful tax wrapper in the IRS code. If you can pay this year’s copays from cash flow, do it, and let the HSA compound.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.