Healthcare bills can really put a dent in your wallet.
Fortunately, HSAs are a tried-and-true method for conquering unexpected medical expenses. There are a couple of ways to maximize your HSA.
Of course, you could stash some cash in your regular savings account and use it for surprise medical bills, but utilizing an HSA (health savings account) is much more effective. Why? Because HSA funds benefit from the triple-tax advantage: tax-free contributions, growth, and withdrawals for qualified medical expenses.
According to Bank of America, during the second quarter of 2023 almost 40% of HSA holders put more money into their HSAs than they took out. That’s a win!
Here’s how to make the most of your HSA:
Sure, it exists to help with medical bills, but the trick is not to empty it out every time you have a health cost. Why? Because when you leave that money alone, it can grow tax-free. An excellent way to take advantage of that tax-free growth is to invest your HSA funds. Plus, if you use it for qualifying medical expenses, you won’t pay taxes when you take it out.
Imagine this: you contribute $300 a month into your HSA for 20 years and don’t touch it.
Meanwhile, you deal with medical bills using your regular savings. Let’s talk numbers. Over the last half-century, the stock market has been a champ, averaging a 10% return every year. Even if your HSA does a little worse, say 8% annually, you could end up with around $165,000! Sweet deal, right? That’s a nice chunk of change to have when you retire, and medical bills start knocking on your door.
Speaking of retirement, it’s a whole new ball game. Your income might be limited to your savings and Social Security. So, if possible, avoid withdrawing from your HSA now. Save it for later when you might need it more.