What is an HSA?

what is an HSA
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Health Savings Account

HSA stands for Health Savings Account. It’s used to save money for future medical expenses.

This type of savings account allows you to contribute pre-tax dollars. It’s like a 401(k) plan but for medical expenses.

To contribute money to an HSA you must have a High Deductible Health Plan (HDHP). The contribution limit for 2021 is $3600 for an individual or $7200 for a family.

Money taken from the account and spent on qualified medical expenses is not taxed. No tax on the money added and no take on the money spent so long as you follow the rules.

The Pro Tip Strategy

  • Contribute the maximum amount allowed each year.
  • Hold the minimum amount of required cash. It’s usually around $1000.
  • Invest the rest of the money in the S&P 500 or Total US Stock Market.
  • Do not withdraw any money. Pay for medical expenses like all other expenses.
  • Let the invested money compound for decades.
  • $3600 invested every year for 30 years at 7% ROI will grow to $367,463.
  • That should be enough to cover all your medical expenses in retirement

Read our what is an HSA article for more in-depth information and strategies.

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