91% Do This Wrong

Quote

“The only man who never makes mistakes is the man who never does anything.” - Theodore Roosevelt

91% Do This Wrong

Raise your hand if you don’t like taxes.

*raises both hands

Today is your lucky day then as we are going to discuss a place where Uncle Sam’s cut doesn’t exist.

INTRODUCING the one and only place you will experience a triple tax advantage…

The Health Savings Account.

What Is An HSA

Lets do a 30 second bulleted summary of HSA details to make this quick.

• Health savings account.

• Money goes in tax free.

• Money grows tax free.

• Money comes out tax free for qualified expenses.

• Eligibility: Must be enrolled in a high deductible health plan.

• Contribution limits single: $4,150

• Contribution limits family: $8,300

Restrictions:

• Can’t be enrolled in Medicare.

• Can’t be claimed as a dependent on someone else’s tax return.

• Can’t be enrolled in FSA at the same time.

What are qualified expenses?

Check out the summary below, or access the full list of IRS Qualified Medical Expenses by clicking here.

Phew that was quick. Yes there are other fine details but I’ll leave those up to you to dig up when you do your own research.

Those are the basics. Onward.

Full Compounding Engaged

According to a study by the Employee Benefit Research Institute, 91% of people only hold cash in their HSA (bunch of rookies). These folks deposit money in the HSA, treat it as a savings, and use the account to pay off near term expenses.

Not bad for an average joe, but here are four steps that will turn your HSA into a compounding machine.

1. Use the HSA as an investing account.

2. Try to cover medical expenses out of pocket as they come up.

3. Save and record receipts of your medical expenses.

4. Reimburse yourself 10,15, 30 years later after compounding has done it’s magic.

Receipts Turned Checks

A simple example of how this would work.

You spent too much time staring at the NVDA stock chart without blinking and ruined your eyes. Now you need a new pair of glasses that ran you for $700.

Instead of pulling money out of your HSA, you do like an HSA Chad would and pay out of pocket.

That allows $700 of the $4,150 (single limit) you contributed to your HSA to remain invested.

20 years later after growing 8% annually that $700 will be worth $3,262.

Just for fun. Assuming the same 8% annual return, and limits not increasing, maxing out an HSA for 20 years would grow to $205,000.

The goal is to leave invested money in your HSA untouched to allow it to compound and grow. Later down the line, one can use the medical receipts to pull out those expenses tax free.

PS: Use some sort of digital record/scanner to keep track of your receipts. Don’t trust HSA provider to keep up with expenses.

Conclusion

You are going to have health expenses at some point. If not, I’ll take whatever you are drinking.

As always, there are fine details that go into HSA’s. Choosing the right insurance plan, if an HSA is offered by your employer, unique financial situations, etc.

Hopefully, this post at least made you aware of why the HSA is arguably one of the best investing accounts. (and how to take full advantage of it)

Personally, I’ll be maxing mine out this year.

Let’s turn those medical expense into checks. ~ Cade

Cade's Finds

The Cost of Covered Calls - Great YouTube video by The Plain Bagel explaining the pros and cons of the covered call strategy. So called “bonus income” does come with its drawbacks.

Take FULL Advantage of Employer Benefits - While looking into getting an HSA setup it also worth making sure you are taking full advantage of other employer benefits. Here is a quick thread with some helpful pointers on doing just that.

10 Visuals For Investors - Another cool thread summarizing 10 lessons from the book Stocks for the Long Run by Jeremy Siegel. My favorite part about this thread was the charts and visuals. Markets can be confusing. Thankfully, pictures make things much easier to understand.

Best Memes

A CPAs worst nightmare.

People’s house savings are going to go up in smoke, or they will be able to afford a mansion.

Nothing in this email is intended to serve as financial advice. Do your own research. Thanks for reading, if you have any questions, comments, suggestions, etc. about the email don’t hesitate to send me a reply.