Anytime I try to do my benefits the description isn’t helpful in explaining why it’s such a good investment move, aside from stating the obvious that it saves money incase you need it. Do I have to invest it? Or do you just let it sit? I’m confused
In: Economics
There’s what’s called a triple tax advantage to an HSA:
1. You don’t pay taxes on the money you put into the account.
2. You can invest the money you put in the account, and you don’t pay taxes on the profit/growth of those investments.
3. You don’t have to pay taxes on money you withdraw from the account, as long as you spend it on eligible medical expenses.
But for many people, the key is this: There is no time limit for taking money out to pay for an eligible medical expense.
So let’s say you have a $500 medical bill. You could take $500 out of the account to pay for it, sure. But if you have the money, you could pay the bill out of pocket now and leave the $500 in the account to grow tax-free for years or decades. As long as you have a record of you paying the bill out of pocket (like a receipt), you can take $500 out of the account tax-free *at any point in the future*. Thirty years’ worth of out-of-pocket medical expenses *that you would have had to pay anyway* can come back to you in tax-free payments down the road, while your money is growing the whole time. It can effectively become another tax-advantaged retirement account.
If you end up not needing the money for medical bills after all, you can withdraw money after you turn 65 and just pay ordinary income tax on it, same as you would with an IRA or 401(k). And of course if you DO encounter huge medical bills down the road, that money in the account is there for you.
Latest Answers