Free AI web copilot to create summaries, insights and extended knowledge, download it at here

Abstract

f to save.Most times, HSA contributions are an automatic deduction from your paycheck and deposited directly into your account. Just like with taxes, retirement, and health insurance premiums, we don’t count money we don’t see as income.Out of sight, out of mind.We can use this trick to our advantage, pumping money we don’t even budget for into our medical/retirement account, keeping our cost of living lower than if we had a bigger paycheck.<h1 id="85ba">How to Double Dip on the Double Dip</h1>If this HSA hack is considered a double dip, then let’s add on a second.When paying your medical bills with post-tax income, be sure to use a credit card with some type of cash back or other rewards program. It also builds credit history, increasing your FICO score, and lowering your borrowing costs for a car or house.It’s a win-win-win.My wife and I use the Costco card from Citi. Medical bills are included in the lowest tier of 1%, but that’s 1% less than we would pay.Can you imagine of your retirement accounts earned 1% more every year or if you were able to invest 1% more?Small changes have big consequences.<h1 id="115d">Beware the IRS</h1>This is not so much a warning as it is a reminder. To pull off this HSA hack for years or decades, you need to keep immaculate records of your health care costs.<ul><li>Medical bills</li><li>Insurance Explanations of Benefits (EOBs)</li><li>Payment receipts</li></ul>Our method is to add a folder to our OneDrive account labeled HSA Medical Payments, with subfolders for every calendar year.Any time we pay for something that is eligible to be covered by our HSA account, we save the receipt to that year’s folder.The reason for this is simple. By maxing out your HSA account but not withdrawing anything, a married couple can amass $72,000 in just 10 years. And that’s not allowing for any limit increases.Now imagine that you take out$ 20,000 a year for 4 years for “eligible medical expenses” when you’re really using that money to pay for your daughter’s tuition.While technically legal, the large withdrawals in a short amount of time will probably flag the IRS to perform an audit on your account. When (not if) that happens, you want to be able to hand over each and every piece of information they ask for, and then some.While it seems that personal finance can be a game, with money keeping sco

Options

re, real life has serious consequences, and you don’t want to be on the wrong side of an IRS judgement.<h1 id="f45f">The Takeaway</h1>The HSA hack is just one of several ways to take advantage of the tax benefits offered by the laws and policies put in place by our government and its agencies.There is a reason that HSA accounts are tax-free, and that’s to help people pay for medical costs. If you are lucky enough to afford healthcare without the tax assistance, then use the system to your benefit and reduce the taxes on your retirement.Don’t illegally cheat on your taxes.Do legally use the tax system to your maximum benefit.<h1 id="d883">Related Stories</h1><ul><li><a href="https://themakingofamillionaire.com/lets-do-the-math-health-insurance-bc8b684daac4">Let’s Do The Math: Health Insurance</a></li><li><a href="https://themakingofamillionaire.com/why-all-the-love-and-hate-for-the-hsa-1cdf2d46dd13">Why All the Love (and Hate) for the HSA?</a></li><li><a href="https://readmedium.com/your-super-cheap-health-care-deductible-is-too-expensive-20dbe0f9902c">Your Super Cheap Health Care Deductible Is Too Expensive</a></li></ul><h1 id="33c5">Most Recent Stories</h1><ul><li><a href="https://readmedium.com/i-have-65-886-in-daycare-debt-f02c4729963">My Son’s Daycare Will Cost $65,886</a></li><li><a href="https://readmedium.com/measuring-inflation-is-damn-hard-86b4727d50db">Why Is Measuring Inflation So Damn Hard?</a></li><li><a href="https://readmedium.com/this-is-what-happens-when-you-water-a-desert-d82e94cee6de">This is What Happens When You Irrigate a Desert.</a></li><li><a href="https://readmedium.com/parents-how-to-add-a-covid-career-gap-on-your-resume-6649d967d2ff">Parents: How to Add a COVID Career Gap on Your Resume.</a></li><li><a href="https://readmedium.com/the-k-shaped-student-loan-story-995bfd6bbb2">The K-Shaped Student Loan Story</a></li></ul>Don’t miss my next article! <a href="https://theadamparsonsproject.medium.com/subscribe">Click here to get notified when I publish new material</a>.If you love the articles published in Money. Daily., then <a href="https://theadamparsonsproject.medium.com/membership">become a member of the Medium community and get full access to our full archives</a>.This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.</article></body>

The Secret (and Completely Legal) Way to Hack Your HSA

How to pay for non-medical expenses with your tax-free medical funds.

Photo by **Andrea Piacquadio** from **Pexels**

The Health Savings Account (HSA) has been hailed as the holy grail of health financial products due to its triple tax advantage.

Contributions are tax-free
Asset growth is tax-free
Withdrawals are tax-free

We can also add in this little tidbit: there is no time limit for reimbursements.

What can we do with that?

Pay Now. Earn Later

With no time limit, we can get reimbursed for any qualified medical expense 1, 5, 10, 20 years down the line.

It doesn’t matter.

There’s no time limit!

None. Nada. Zip. Zilch. Zero.

You might be wondering why I’m so excited about this, and I’m about to tell you.

Are you ready?

Since there is no time limit, you can pay for medical expenses using taxed income now, then get reimbursed to pay for something else in the future with tax-free money.

This is a big deal for two reasons.

1. Tax Benefits

There are two main types of retirements accounts (and we’re not including pensions).

Contribute tax-free, invest, then get taxed on withdrawals (traditional)
Contribute post-tax, invest, then withdraw tax-free (Roth)

Using your HSA as a retirement vehicle and paying for medical with income, you are getting the best of both worlds.

2. Forced Savings

Some people may discredit the tax advantage, as you are paying taxes on your medical expenses. And I can see that…kind of.

While we can do the math on taxes, the other main benefit is psychological.

Using the HSA only for future expenses and paying medical bills up front, you are forcing yourself to save.

Most times, HSA contributions are an automatic deduction from your paycheck and deposited directly into your account. Just like with taxes, retirement, and health insurance premiums, we don’t count money we don’t see as income.

Out of sight, out of mind.

We can use this trick to our advantage, pumping money we don’t even budget for into our medical/retirement account, keeping our cost of living lower than if we had a bigger paycheck.

How to Double Dip on the Double Dip

If this HSA hack is considered a double dip, then let’s add on a second.

When paying your medical bills with post-tax income, be sure to use a credit card with some type of cash back or other rewards program. It also builds credit history, increasing your FICO score, and lowering your borrowing costs for a car or house.

It’s a win-win-win.

My wife and I use the Costco card from Citi. Medical bills are included in the lowest tier of 1%, but that’s 1% less than we would pay.

Can you imagine of your retirement accounts earned 1% more every year or if you were able to invest 1% more?

Small changes have big consequences.

Beware the IRS

This is not so much a warning as it is a reminder. To pull off this HSA hack for years or decades, you need to keep immaculate records of your health care costs.

Medical bills
Insurance Explanations of Benefits (EOBs)
Payment receipts

Our method is to add a folder to our OneDrive account labeled HSA Medical Payments, with subfolders for every calendar year.

Any time we pay for something that is eligible to be covered by our HSA account, we save the receipt to that year’s folder.

The reason for this is simple. By maxing out your HSA account but not withdrawing anything, a married couple can amass $72,000 in just 10 years. And that’s not allowing for any limit increases.

Now imagine that you take out $20,000 a year for 4 years for “eligible medical expenses” when you’re really using that money to pay for your daughter’s tuition.

While technically legal, the large withdrawals in a short amount of time will probably flag the IRS to perform an audit on your account. When (not if) that happens, you want to be able to hand over each and every piece of information they ask for, and then some.

While it seems that personal finance can be a game, with money keeping score, real life has serious consequences, and you don’t want to be on the wrong side of an IRS judgement.

The Takeaway

The HSA hack is just one of several ways to take advantage of the tax benefits offered by the laws and policies put in place by our government and its agencies.

There is a reason that HSA accounts are tax-free, and that’s to help people pay for medical costs. If you are lucky enough to afford healthcare without the tax assistance, then use the system to your benefit and reduce the taxes on your retirement.

Don’t illegally cheat on your taxes.

Do legally use the tax system to your maximum benefit.

Most Recent Stories

Don’t miss my next article! Click here to get notified when I publish new material.

If you love the articles published in Money. Daily., then become a member of the Medium community and get full access to our full archives.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.