Successful and high-earning CRE brokers are always looking for ways to pay less taxes and invest for the future. One account accomplishing both is a Health Savings Account (HSA). HSAs are often overlooked because not everyone qualifies, and most do not realize the money in these accounts can be invested similar to an IRA. For tax purposes, HSAs could be the best investment account available.
Enrolling in a qualified, high-deductible health insurance plan will allow you to open an HSA. Unlike a Flexible Spending Account (FSA), the HSA does not require that the funds be spent annually and more importantly, allows the contributions to be invested. Maximum contributions this year for an Individual plan are $3,550 and $7,100 for a Family plan. For those age 55 and older, but not on Medicare, a $1,000 catch-up contribution is allowed.
Contributions are tax-deductible. If used to pay for qualified medical expenses (as defined by IRS), withdrawals are tax-free. Effectively, this combines the best tax characteristics of an IRA and Roth IRA.
Many tend to use the HSA like a checking account. But if feasible, a better strategy is to pay for out-of-pocket medical expenses through regular cash flow (not using the HSA) and instead, invest the contributions to grow the account. After many years of making contributions, plus investment growth, you could find yourself with an account of considerable value, quite possibly enough to pay for most of your medical expenses in retirement, depending on your time horizon.
Although not ideal to access retirement account funds before retirement, the HSA allows more flexibility for accessing funds should the need arise. Qualified medical expenses do not have to occur in the same tax year as the withdrawal, so you could take out $5,000 today to reimburse yourself for medical expenses from five years ago. Otherwise, withdrawals used for non-qualified medical expenses will have taxes and penalties similar to other retirement accounts.
If you are not able to make the maximum contributions to all your retirement accounts, then the HSA should arguably be at the top of the list for making a tax-deductible contribution. COVID-19 legislation has extended the deadline to make a 2019 contribution to July 15. We are happy to speak with you to confirm eligibility and show you how the HSA can fit into your retirement savings strategy.
