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Turn Your Health Savings Account into an IRA on Steroids

Health savings accounts (commonly referred to as “HSAs”) have grown in popularity over the past few years, especially in light of the Affordable Care Act. The beauty of these accounts is that you can get a deduction for contributions to the HSA. The maximum contribution in 2015 is $3,350 and $6,650 for individual and family plans, respectively; add $1,000 for those age 55 and older. When taking amounts (including investment earnings) from the account to reimburse medical expenses, the amounts are non-taxable. As most of us know, amounts coming out of a Roth IRA are nontaxable as well. However, unlike an HSA, contributions to a Roth IRA are made with after-tax dollars. See the possibility? Why not, then, treat your HSA as an investment vehicle?
I know what you’re thinking. “Hey, how am I going to get all those dollars out of my HSA without a significant amount of medical costs in the future?” There is nothing in the law or regulations against accumulating receipts of reimbursable medical expenses and reimbursing yourself years later, as long as you incurred the medical expenses after the HSA was established.    

So, you take a deduction for the contribution, like with a traditional IRA. Then, you pull the money (including earnings and appreciation) out tax-free, like a Roth IRA. That sounds like an IRA on steroids to me!

As with all investment vehicles, this may not be for everyone. Those with tight cash flow, particularly with high medical expenses, may have a tough time making this work. However, the HSA can be a tool for many in the quest to accumulate wealth.

Daniel Gibson CPA has almost 30 years of experience in public accounting, providing accounting, tax and consulting services. Dan is a member of the AICPA and NJ Society of CPAs.

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