There is such an investment that I’ve used over the years and I love it!
It’s called a Health Savings Account or HSA for short.
You can invest in an HSA if you have a qualifying high deductible insurance plan with your employer (or with your own insurance provider if self-employed). You should check to see if your current health plan has an HSA option or if it makes financial sense to switch to another health plan with an HSA option.
The contribution limit for an HSA each year is $7,300 for a family (this is the 2022 rate & it usually goes up each year).
So, check this out:
- When you contribute $7,300 over the course of the year, it reduces your taxable income by that same amount - awesome!
- Then as the $7,300 grows in a good, low-cost index fund, you’ll not pay taxes on that growth inside the HSA - also awesome!
- Finally, when you pull it out for qualifying medical expenses over the course of your life, there will be no tax when you withdraw it - very awesome!
There’s literally no other investment like this.
What’s the catch?
You have to use they money on qualifying medical expenses — doctors, medicines, prescriptions, surgeries, etc. You get the idea. These costs certainly add up over the course of many years (and including all of your family members).
Do you lose the money if you don’t have enough qualifying medical expenses over the course of your life? No. Once you turn 65, you can withdraw it just like a 401k. You’ll just have to pay income tax like on your 401k/403b (double dip instead of triple dip) since you didn’t use it on medical expenses.
Here’s the common F.I.R.E. Community hack for HSAs:
- Contribute the full amount each year
- Save all of your qualifying medical expense receipts (but don’t draw money out to pay for them)
- Let it grow over the course of many years/decades
- When you hit retirement, you can start drawing out the money TAX FREE (even better than your 401k or 403b) by reimbursing yourself for all of your medical expenses over the last 20+ years. Believe it or not, you can pay yourself back for medical expenses from 20 years ago with the HSA (assuming you kept receipts/proof).
- Let’s say you had $50-100k in qualifying medical expenses over the last few decades, you can pull all of that out at one-time TAX FREE just by producing the receipts (or you could draw it out over the course of a few years). Chances are you may have well over $50-100k in the account & you can use the rest to cover all medical expenses for the rest of your life. It can even pay your Medicare premiums in retirement! Amazing!
If you can invest in an HSA, I’d highly recommend it! It’s one of the best investment vehicles out there!
