To the best of my knowledge, contributing to a Health Savings Account (HSA) is the only investment opportunity that allows for tax-deductible contributions and tax-free withdrawals. Please note that only individuals with a qualifying high-deductible health insurance in place are allowed to contribute to an H.S.A. You can ask your health insurance provider if the plan you have qualifies.

Insurance is set up to protect individuals from a financial catastrophe.  Over the years, however, health insurance evolved to more of a system that paid for all of the healthcare costs for individuals and families. I’m guessing that was to encourage people to have their annual physicals and to seek out medical care as soon as possible, since treating an illness early could end up being a lot less expensive than having a person avoid seeing a doctor to save the cost of the visit.  Pay a doctor $100 now for a consult and save thousands later on treatments that potentially could have been avoided with some preventative visits.

Due to skyrocketing healthcare costs, a larger portion of the cost of early visits now falls on the individual.  Since you are looking for your health insurance to protect you against the catastrophic and not to pay all your small health related bills, that’s actually fine.

If you and your family are reasonably healthy, take a look at switching to a qualifying high-deductible health insurance plan and start contributing to a Health Saving Account to receive the following tax breaks:

  • Amounts contributed to an HSA are tax-deductible whether your employer contributes or you contribute on your own.
  • Amounts invested within the HSA grow tax-deferred.
  • Amounts withdrawn to pay your family’s healthcare cost are tax-free.
  • Any money remaining within the HSA once you turn 65 can supplement your retirement.  You will owe income taxes on money distributed.  Most likely you will have medical and dental expenses to pay from your HSA that will would be tax-free.

The maximum you contribute to an HSA for 2018 is $6,900 for a family or $3,450 for an individual.  Anyone 55 or older by 12/31/18 can add another $1,000 this year.

And as we wrote earlier this spring, HSAs make a great Buy and Hold Proposition.  Instead of using money from your HSA to pay routine healthcare bills for your family, pay those bills out of your household account and keep more money in your HSA growing in a  tax-deferred envelope that will ultimately be available for tax-free distributions down the road.  You can purchase low-cost Vanguard funds through HSA Bank.