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Welcome, Future Early Retirees.

Healthcare is expensive! In today's world of healthcare costs, finding efficient ways to manage and save for medical expenses is important to give you peace of mind. Enter the Health Savings Account (HSA) - a tool that not only helps you save for health-related costs but also offers tax advantages that can make a significant difference in your financial health. What makes this unicorn so special?

In today’s newsletter:

• Share Money Bags 💰

• What is a health savings account?

• Should I have one?

• Weekly Trivia ❓

• Things I found interesting

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What is a health savings account?

A Health Savings Account is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. Here's what you need to know:

• How to get one: To open an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). This plan typically has lower premiums but higher deductibles than traditional health insurance plans. The IRS sets the criteria for what constitutes an HDHP each year. For 2024, an HDHP must have a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage. The maximum out-of-pocket expenses must not exceed $8,050 for individuals or $16,100 for families

• Contributions: Contributions to an HSA can be made by you, your employer, or both. The funds roll over year to year if not spent, unlike Flexible Spending Accounts (FSAs). For 2024, the contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those 55 and older.

• Ability to Invest: Many HSA providers allow you to invest your balance in mutual funds or other investments, potentially increasing your savings over time.

Should I have one?

• Financial Planning for Healthcare: An HSA acts like a personal fund for health expenses, which can be unpredictable. Having this dedicated account helps in budgeting for current healthcare costs and saving for future ones, including those in retirement.

• Tax Efficiency: The tax benefits of an HSA are unparalleled. By reducing your taxable income through contributions, earning interest or investment gains tax-free, and then spending on medical costs without tax, you effectively make your healthcare dollars stretch further. That’s a TRIPLE tax advantage!

• Flexibility and Control: Unlike other health-related accounts, HSAs give you complete control. There's no "use it or lose it" rule. The money is yours to keep, even if you change jobs or health plans. This flexibility makes it an excellent vehicle for long-term savings, particularly as healthcare costs are expected to rise.

• Retirement Health Costs: After age 65, you can withdraw funds for non-medical expenses without penalty, although you'll pay income tax on those withdrawals, similar to a traditional IRA. This feature makes an HSA a supplementary retirement account, focused on healthcare, which is one of the largest expenses in retirement.

Incorporating a Health Savings Account into your financial strategy is not just about managing current health expenses; it's a proactive approach to future-proofing your healthcare costs while enjoying significant tax benefits.

Whether you're young and healthy or preparing for the medical needs of later life, an HSA offers a flexible, tax-advantaged way to ensure you're financially prepared for health-related uncertainties. I encourage you to explore how an HSA can fit into your overall financial health plan, and consult with a financial professional to tailor this tool to your specific needs.

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