How to maximize your HSA in 2024

Are you fully utilizing your HSA? Maxing it out, investing the funds (a lot of people miss that), and then not spending the money right away but instead letting it grow and compound tax free?

Did you know that you HSA turns into a regular IRA for tax purposes after age 65?

I answer all this, and you'll also hear my thoughts on buying Nvidia in your HSA :)

Transcript:

Let's talk about HSA's health savings accounts here in 2024. I'm Chris Kaminski, co-founder and partner here with Consilio Wealth, where we specialize in working with tech professionals at Amazon, Microsoft, Metta, and Google.

HSA's health savings accounts are phenomenal accounts. The amount that you contribute to them is tax deductible. You can invest the funds, which means that they grow tax deferred and when you utilize the funds, you can receive those funds tax free, so long as you use them to pay for medical expenses. The limits here in 2024 for a single individual are $4,150.

For married couples, you just double it, and it's $8,300. Oftentimes, your employer will kick in some money. Let's say it's a thousand dollars, for example, for a married couple. That means that you'd be putting in $7,300 at the maximum. Your employer would put in $1,000 to sort of incentivize you to take the HSA plan. HSA plans go along with high deductible health plans.

So, there are generally two types of health plans that you're offered at your employer. The high deductible plan, which is exactly what it is. It's a high deductible plan. You'll have a higher deductible, maybe many thousands of dollars per year. Once you pay through that deductible, then your insurance pays a lot.

The HSA is designed to bridge the gap between zero and your deductible so that then you're not coming out of pocket fully for all those medical expenses. In addition, for people that aren't spending a lot of money on medical expenses, you could save in the HSA, take the deduction for it, take your employer contribution and save all that for the future, which can be a good deal.

The other type of plan is a PPO plan. That plan is a more Cadillac plan and that plan does not have an HSA, but that plan will pay for more of your medical expenses upfront and you'll have smaller co-pays, more co-insurance and this type of thing. Your individual health situation should be considered when deciding which plan is best for you. It really depends on how much you spend or plan to spend on medical expenses throughout the year.

Couple of key things on HSAs, anything that you contribute to them is tax deductible. That's great. Make sure to invest the money. A lot of people miss this. We see HSAs with pretty good size balances in them and they're just sitting in cash earning a low interest rate. Make sure you invest the money. For many of your plans, you can invest to a buffer amount as well.

Let's say you have a buffer of cash of a thousand or two thousand dollars so that you have quick access to cash should you need it to cover a medical bill and then you can invest the amount above that buffer in whatever fund that you want. We generally like to see well diversified money that's in there.

However, it is permissible in most HSA plans to buy individual stocks. I will say we generally don't recommend that to clients. If you want to go buy Nvidia stock in your HSA that is fully up to you but that's not what we recommend. We want you to be more diversified than that with your health savings money.

Finally, on the way out, when you go to withdraw funds from your HSA, those withdrawals are tax-free, so long as you're using it for medical expenses. Medical expenses are normal medical expenses, so paying for medical bills that you get and other sort of related things.

One cool thing about HSAs, you don't have to pay from your HSA right away. So if I have a bill right now here in 2024 for $1,000, I could pay cash for that bill, and then 10 years from today, I could take the money out from my HSA and I could refund myself for that bill that I paid today in cash. What's the advantage there?

Well, I let my money sit in the HSA and compound over a number of years, which ultimately allowed that thousand to be worth hopefully more than a thousand and then I paid back that bill that was only a thousand dollars from 10 years prior. There's no limit on this. You could do this 10 years from today, 20 years from today, whatever it is. Our advice, take pictures of your bills, document this so that you have very clear records. Just get in the habit of doing it.

It'll only take a couple seconds once you form the habit. Put a folder on your computer and have all these bills that you're paying cash for and then you can pretty easily in an IRS audit show, I paid this bill out of this account, done.

Lastly, generally speaking, we like to see HSA balances grow. If you have the cashflow and the means to pay for your medical expenses out of your cashflow, just let the money continue to grow in your HSA. You'll likely need it later on in life and even if you don't, one of the cool provisions about an HSA is it turns into a regular IRA after age 65.

That means that after age 65, you take out of the HSA, you're going to pay tax on the money just like a regular IRA, but it's not like it's a use it or lose it account. HSAs in general are great. We're constantly auditing pay stubs to make sure that clients are maxing those accounts out. These are a great, great tax benefit. All right, that's how to maximize HSAs in 2024.