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I suspect many of us are heading into open enrollment season at work as we approach year end. Perhaps this week’s discussion can be food for thought as you evaluate the health insurance options that may be available to you.


Many people conflate Flexible Savings Accounts (FSA) with Health Savings Accounts (HSAs), though they’re quite different. An FSA is a temporary bucket of pre-tax money while an HSA is an investment vehicle with unique tax advantages.


Advantage 1

As with FSAs, HSA contributions are pre-tax deductions, thereby reducing your taxable income. But that’s where the alignment ends. HSAs are invested in the market—whereas FSA funds sit statically in a non-interest bearing account until you “use it or lose it.”


Advantage 2

Instead of sitting idle, however, the money you contribute to an HSA can be invested directly into the stock market. And you can choose your investments: from stocks to ETFs to UVstocks.io screener picks—your money grows as the market grows. This happens absolutely tax free with no tax burden on capital gains as you actively make trades.


Advantage 3

On top of years of pre-tax contributions, tax free trades, and the magic of compounding growth, your HSA funds can be withdrawn 100% tax free to cover an ever expansive list of medical expenses as you age, not only for you but your spouse and tax dependents.


It gets better—and this is my favorite part. Withdrawals don’t have to be real-time and can happen years later. All you need are the receipts. Let’s say over time your HSA has grown to $200K, and you have the receipts for $100K of out-of-pocket expenses such as deductibles and over-the-counter meds, you can literally cash in those receipts and withdraw that $100K 100% tax free. The rest can be earmarked for upcoming medical expenses. I can’t think of many things better than this.


And finally if you have the good fortune of living a long healthy and active life, and don’t need a majority or any of the HSA funds for medical purposes, you can withdraw from the account after age 65 at your current tax rate—similar to your 401(k)—and use the money to support your life-style with no RMDs. Or you can choose to let compounding run its course and pass on your HSA to your heirs.


You’ll need to be mindful and disciplined about covering medical costs up front when on a high deductible insurance plan coupled with an HSA. For me it has helped to reframe the expenditure as just another way of dollar cost averaging (DCA) into the stock market.


So given the unique tax advantages and investing options of an HSA, you may want to consider enrolling this season. But be sure to fully understand your health coverage and out-of-pocket obligations. You’ll need to budget accordingly.


When my wife and I first jumped in, we concluded it made financial sense for us because we hadn’t been meeting our annual deductibles on the non-HSA (lower deductible) plans we were in. So why not just convert our healthcare-related expenses to investable assets that will compound for the next few decades?


"If you invest it wisely, it can look like a health 401(k)."— Ted Jenkin




Not sure where to start or know someone that could use the help? Help them start building their health 401(k) today by sending them this article and the UVstocks.io link.


P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.


Happy Investing,

John


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