A Resolution to ‘Bank On’: Supercharge Your HSA in 2020

It’s the New Year, and as such, the perfect time for a bit of a reality check when it comes to your long-term financial planning.

Last year, Fidelity Investments reported that the average American couple retiring in 2020 should plan on spending upwards of $300,000 for health care expenses over the course of their retirement. Seeing as how this isn’t the kind of money that you can expect to find lying around in the couch cushions, it’s pretty clear that we need to find other ways to plan for these overwhelming costs.

Health Savings Accounts (HSAs) are one of the most oft-overlooked tools at maximizing your retirement funds. Squeezing the most out of your annual contribution requires the integration of a few simple but effective tactics, and fortunately for you … I’m willing to spill the beans.

The Triple Tax Advantage of Health Savings Accounts

Here’s the deal: HSAs offer three distinct tax advantages bundled into one. The first tax advantage is that your contributions go in as pre-tax dollars, just like many other tax advantaged retirement accounts, such as IRAs, SEPs, and 401ks.

The next advantage is the tax-free growth advantage, which means that your investments can compound, without you having to pay taxes on income from dividends, interest, or capital gains. The difference this can make on your returns in comparison to other investments that do not have this tax shield is quite significant.

The final advantage, and perhaps the most important, is known as the HSA advantage. If you withdraw money to pay for medical expenses, you never pay taxes on that withdrawal.

There is no other investment vehicle out there that gives you a tax write-off when you fund it, that grows tax-deferred, and also allows you to take withdrawals tax-free.

With these advantages in mind, the smartest strategy is to fund your HSA first (prioritized above any other investments), and fully.

Contribute Early & Contribute BIG

Lesson one: make your contributions on the first day of the year, or, as early as is feasibly possible. The more time your money spends inside the HSA, the more value it will accrue. For example, a contribution make on January 1st, 2020 will earn precisely 470 additional days’ worth of tax-free interest, as opposed to a contribution made at the final deadline.

Or, to put it in terms of real dollars, consider that some experts have estimated the cash value of this additional tax-free interest to be in the neighborhood of $94,000 over a 30 year period. That’s not the kind of number that we would recommend turning your nose up at.

While you technically have until April 15th of the following year to make your annual contribution, getting it done early is not only the right financial move, but it will also be one less thing to worry about going into the New Year, leaving you to focus on the more important things in life.

Maximize Contributions, Minimize Withdrawals

The examples provided above are also effectively illustrating why it is important to see to it that you are putting as much money into your HSA as is allowed, and, if possible, try not to touch it.

Making the maximum contribution is an essential step in building lasting value for your retirement, but the other side of the coin is minimizing the amount of money that you are taking out.

Here’s a pro tip: there is no time limit for how long you can wait to reimburse yourself for qualified medical expenses with funds from your HSA. This means that it is possible to both increase your earned interest and still get reimbursed for the costs.

By keeping a folder of receipts for all un-reimbursed medical expenses, you can let your money grow tax-free, confident that you will be able to reimburse yourself at a date of your choosing. It’s like “double-duty” for your hard-earned dollars.

There’s Still Time to Make a 2019 Contribution to Your HSA

While it’s always a good practice to make your annual contribution on the first of the year, there will be times when this simply does not or can not happen. If you have yet to fully fund HSA for the 2019 calendar year, there is still time.

The final deadline for 2019 contributions is April 15th, 2020.

The contribution limit for 2019 is $3,500 for an individual, or $7,000 for a family. If you or your spouse is currently over the age of 55, you can both contribute an additional $1,000.

Don’t Have an HSA-Qualified Plan?

Not all health insurance plans are qualified to operate in conjunction with a health savings account. If you are thinking about getting an HSA, then the first step is enrolling in a qualified plan, ideally as soon as possible. After all, you worked hard for your retirement money … the least it can do is work hard for you in return.

Click here to schedule an appointment, or call 800-913-0172 to get started.    

To your health and wealth,

Wiley P. Long, III
President - HSA for America

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