America's characteristically unpredictable market and ever-changing legislation can make it difficult for the average investor to make ends meet and put away enough savings to reach retirement goals. Thankfully our current tax laws provide tax payers with a great way to save money and reduce taxes in their retirement accounts. Health Savings Accounts
are rapidly growing in popularity. Created back in 2004, HSAs provide investors with a unique way to save money, grow retirement accounts, and pay for medical expenses. HSAs have the tax-free quality of a Roth IRA, but the tax-deductibility of a Traditional IRA.
Rising health insurance costs have pressured employers to offer High Deductible Health Plans to employees. Some employers choose to fund their employee's HSAs to take some of the sting out of the high deductible. What makes HSAs alluring is that contributions to HSA accounts made by the individual are 100% tax deductible, and distributions for qualified expenses are not taxed.
One of the most appealing features of HSA distributions is that there is no time limit on how long investors can hold onto qualified expenses before requesting a reimbursement. In this way, waiting to take distributions from the HSA gives the account more time to grow.
Most HSA accounts are meant to be spent on qualified medical expenses, which means they are mainly offered without access to "alternative" investments outside of the stock market. In order to gain access to the types of investments that historically have a better chance of growing your HSA, you need to open a self-directed HSA account and direct the funds. You may direct the funds into brokerage accounts, precious metals
, or real estate
. As long as you stay within IRS guidlines, there is no limit to your HSA investment options, Consider this example: Tracy has been contributing to her HSA for 3 years, and has accumulated more than $16,000. Although he has more than $10,000 in reimbursable medical expenses, she plans on holding on to them for a while. As a real estate broker, Tracy sees many opportunities for second mortgages. Her colleage Phil has a deal that requires additional cash. A first mortgage has been obtained by Phil’s client for the purchase, but the renovations will require an additional $15,000. Tracy offers to lend the funds to Phil’s client for 8%, and will secure the financing with the property. The money will be tied up for 2 years, but during that time it will be earning a reasonable interest rate.
Why not invest in something long-term, and request reimbursement ten, fifteen, or twenty years in the future? Allowing contributions to grow long-term (now $6,750 per family in 2016) can result in a lucrative and pain-free investment. Read more
about how you can build a million-dollar HSA in your not-so-distant future! New Direction IRA is a self-directed IRA and HSA account administrator and does not sell or sponsor any investment products nor provide investment or tax advice. Since 2003, New Direction has helped clients invest in what they know and understand.