Talk dirty to me some more
What if I told you I have never spent any of my HSA funds and pay all medical expenses out of pocket?
I’ve heard of this but don’t get it. First it’s always a bit risky exploiting a loophole that congress could close anytime over the next 20 years that would mess up the strategy. But also, like the only expense guaranteed to go up when you get older is healthcare. So those funds are definitely getting spent either way.
Funds you contribute to an HSA (through an employer plan) are not subject to income tax AND not subject to SS/Medicare, this is basically an extra 7%. Funds you contribute to a traditional IRA/401k have SS/Medicare taxes applied. Essentially funds you contribute to your HSA are never taxed by the government in any way until you are old. When you reach a certain age (not going to google it now but its in your 60's) you are eligible for medicare and any funds you still have in your HSA are treated like a traditional IRA.
Scenario - Lets say you are a good looking great smelling KSU grad fresh out of college who is in excellent health and ready to take on the world. You expect to have low medical expenses (basic checkups/minute clinic stuff) for the next 10 years and an extra $3,400 to invest. You could just put that $3400 in a traditional IRA....OR....you could sign up for the HDHP health plan and contribute $3400 a year and invest it which is actually worth around $3655 (no SS/Medicare taken out).
After 10 years (Assuming 7% real growth) your IRA balance would be worth $48,477, your HSA balance would be worth $52,190. Run that simulation out to 20 years and its $143,687 vs $154,857, keeps getting larger after that.
You can also pay medical expenses with funds from your checking/savings account and then reimburse yourself Xfinity years down the road after the money has grown tax free for Xfinity years. Spending 2k on lasik this year? Pay with regular funds and save the receipt and then 20 years from now you can withdraw that 2k from your HSA tax/ss/medicare free, in that 20 years that 2k grew to 7.7k so you netted 5.7k in todays dollars by doing this.
This article explains it pretty well
https://www.madfientist.com/ultimate-retirement-account/
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