Learn About the ‘Secret IRA’ Used by Wealthy People to Permanently Cut Taxes

Everyone from working families to retirees worries about how to pay for medical expenses.

That’s why health spending accounts (HSAs) — which allow tax-deferred savings for medical needs — have become an exceedingly popular investment opportunity.

That’s right — investment. Many financial planners now see HSAs as a way to address their clients future medical expenses concerns by investing in a product that can double their assets or more, tax-free.  

The money for a health savings account can be deposited tax-free, grows tax-free and can be withdrawn tax-free when it’s used for health and medical expenses. These triple tax savings are big reason for the current popularity of HSA investments.

The average adult over 65 years of age and on Medicare pays $6,772 a year in medical expenses, so HSA savings is becoming an essential part of retirement planning.

You can only pay into an HSA plan before you turn 65 and qualify for Medicare. Plus, only people with a high-deductible health insurance plan qualify for an HSA.

The definition of a high-deductible varies from state-to-state. However, most are in the ballpark of $2,700 or more for a family.

Because healthcare plans with high deductibles have low premiums, planners are advising their clients to invest the monthly savings difference into their HSA plan.

HSAs have seen meteoric growth, with assets doubling every three years. That growth will put HSAs at more than $64 billion dollars by the end of 2019.

‘Secret IRA’

How can you get the most out of an HSA plan? By treating it like a “secret IRA.”

Only about 10% of HSA investors have saved $5,000 or more. Many people mistakenly believe that you have to use the money in an HSA or lose it.

Many investors confuse HSAs with flexible spending accounts, known as FSAs, which do have be used by the end of each calendar year.

Most HSA providers will only allow the investing of assets above $1,000. Once this prerequisite has been met, it’s imperative that savers start investing.

Fidelity Investments reports that both family and individual HSA plans saw a 50% increase in assets last year alone.

It also is important to educate yourself about your HSA plan, particularly if it’s provided by an employer. For example, many employers allow you to automatically invest any bonuses or profit-sharing directly to your HSA plan.

The rapidly growing cost of medical care paired with the significant earning potential of HSA investments is likely to continue to drive the popularity of this tax-deferral opportunity.