HSA Optimization

HSA

A Health Savings Account or HSA is a great tool for your financial plan. I have written about the HSA a handful of times but today I wanted to discuss a little-known strategy to optimize your HSA. Before I start, let’s discuss what an HSA is. 

An HSA or Health Savings Account is an account that can be used alongside a High-Deductible Health Plan (HDHP). This is one of the requirements of the HSA, you won’t be eligible for the account if you don’t have the HDHP. The HDHP doesn’t make sense for everyone, so please reach out if you’re not sure if it’s the right fit for you or want a recommendation about your specific situation. 

The HSA is funded with pre-tax dollars (you’ll receive a tax deduction when you contribute); the account grows tax deferred (you don’t pay tax each year as it grows), and you can use funds from the account for qualified medical expenses tax free. This is part of the beauty of an HSA; you can fund the account, invest in the stock market and all earnings are distributed tax free if used for qualified medical expenses. This is the only account that is pre-tax on the front end and tax free on the back end. It’s a great tool to take advantage of.  

The HSA is also great for retirement. According to Fidelity, the average retiree will have close to $330,000 in medical expenses in retirement. This is a large chunk, and the HSA can be an ideal bucket of money to pair with other accounts to cover those expenses. An HSA can even be used to reimburse Medicare part B and part D premiums.  

So how do you use an HSA today? It’s simple, if you spend money on qualified medical expenses, you save your receipt and you can reimburse yourself directly from the HSA. Most HSAs also have a debit card, and you can swipe the card to cover expenses.  This is great if you don’t have the cash to cover the expenses.  

However, if you do have the cash and pay the expense out of pocket, how long can you save a receipt before you reimburse yourself? This leads us to the strategy to optimize your HSA. The IRS does not specify a time limit on how long you can save a receipt before reimbursing yourself.  

Imagine this, you pay for your medical costs for the next 10-15 years out of pocket (while saving all your receipts), you let the HSA continue to grow in the market and in 10-15 years you reimburse yourself for those expenses, tax free. Not only were you able to receive a large tax-free lump sum, hopefully there has been market appreciation on the account that you would not have received had you reimbursed yourself right away. 

Hopefully you can start to see the power of this strategy. There could be a significant amount of growth in the account ready to go for future medical expenses while also receiving a large reimbursement tax-free. The caveat here is you need to be sure you save your receipts. This is where your OmnICAP vault can be a great tool. Your team at OmniStar can create a folder for you titled, “HSA Receipts” and you can upload every receipt right into the vault. The vault is unlimited, secure storage for you, and will be a great place to save the receipts for future reimbursement. 

If you think this strategy could work for you, reach out to your advisor to discuss further. Also, feel free to share this with someone you know that has an HSA. If they aren’t doing this, they may want to consider this for themselves. 

As always, please let us know if there’s anything that we can do to help; we’re always here for you.