The Triple-Tax Advantaged Strategy that Too Few Advisors Use

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There’s one strategy that is not only a great wealth-building solution but is also triple tax-advantaged: using a health savings account (HSA). Despite the many benefits HSAs offer, it’s still a highly underutilized strategy. Even when a client does have an HSA or a financial advisor recommends one, it can still be underutilized if clients and advisors don’t know how to make the most of it.

For those unfamiliar, an HSA is a tax-advantaged medical savings account that your clients can contribute to and withdraw from tax-free for qualified medical expenses. Funds in an HSA are split into a liquid cash account and an investment account.

Now that we’ve gotten what an HSA is out of the way, let’s talk about why they’re so beneficial to clients’ financial plans and how to make the most of them.

1. HSA contributions are pre-tax (or tax-deductible)

Interest and investment earnings on HSA contributions grow tax-free. This, of course, is a great reason to let an HSA account balance grow for as long as possible. This tactic can be especially helpful for your younger clients who are healthy and don’t often utilize healthcare services. Rather than using their HSA to pay for the few medical events and expenses they have, they can pay out-of-pocket and allow their HSA to grow. Older clients can also benefit from having their taxable income lowered, and a great way to do that is through HSAs. Each client’s situation is unique, so use your expertise and knowledge of your client’s financial situation and goals to determine whether letting an HSA grow is the right move for them.‍