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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#59 - Why I Love HSAs - Part 1

Why I Love HSAs - Part 1

When it comes to Health Savings Accounts (HSAs), there is a lot to love. I want to dive deeper into several characteristics of these accounts that, in my own nerdy perspective, make them fun (and quite profitable) to understand.

Quick tangent - Obviously when I say “love” I am speaking in the more superficial modern way of I “like” this as opposed to a deeper definition - I set my will towards them. Sorry for contributing to the cheapening of the word.

HSAs are a type of account that you can contribute to if you meet certain qualifications. Two main qualifications are you must have a High Deductible Health Plan and have no other health coverage (with exceptions). You need to be cautious here as even an FSA or an HRA may disqualify you from contributing to an HSA (even if your spouse owns it but they can use it for your expenses). See the IRS Publication for more detail and exceptions.

The beauty of HSAs is that you get a tax deduction when you contribute money and the money can also be invested and grow tax-free if pulled out for qualified medical expenses. This is one of very few ways that you get a tax deduction upfront and can also pull the money out tax-free later.

The vast majority of people I talk to set this account up and use it for medical expenses throughout the current year. Given that it can be invested and grow tax-free, the vast majority are using this account in an inefficient way from a tax perspective.

There actually is something I dislike about HSAs and that is their name Health “Savings” Accounts. If they were named, health investment account or a name that indicated future use people may use them in a more tax efficient manner.

There is much more about HSAs that make them very unique and advantageous. I am looking forward to writing about it more. Thanks for joining me on this admittedly nerdy venture.


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