Why Smart Investors Love Health Savings Accounts

Most people think of a health Savings account or HSA as nothing more than a place to park your money for doctor visits and prescriptions. Well, this couldn't be further from the truth. Because when you actually understand how an HSA works, and more importantly, how it can be used strategically, it becomes one of the most powerful wealth building tools in the entire tax code. In fact, I often tell clients that an HSA could be even better than a Roth ira. And it's like a Roth IRA on steroids. I'm Mark J. Kohler, CPA attorney and small business advocate. And in this video I'm going to show you how to supercharge your wealth with a health savings account, how the rules work today, and how to avoid the common mistakes that keep people from ever using this account to its full potential. Let's break it down. First, what an HSA really is and what it's not, a health savings account is not a use it or lose it plan like a flexible spending account. It's not a short term reimbursement gimmick and it's not something only for people with big medical bills. Here's what an HSA is. A tax deductible account on the front page of your own tax return. And ultimately it can be an account that you can use just like a retirement IRA later in life. It's portable, it's yours, and it goes with you no matter where you work. The triple tax advantage and why this account can be so powerful. In fact, there's no other account in the tax code with this combination of three benefits. First, you get a tax deduction when you put the money in. And there's no phase out, rich or poor. You, you can put money into an HSA on the front page of your tax return and get a tax deduction. Second, the money grows tax free while it's invested in your hsa. Not tax deferred, tax free. Third, you can pull it out for any tax free qualified medical expense at any age. You don't have to wait till you're 59 and a half. You could put the money in when you're 22 and pull the money out when you're 23, tax free. That, my friends, is a triple tax advantage. So you don't get a tax deduction when you put money in your Roth ira. And also you got to pay taxes when you pull money out of your regular ira. With the hsa, you get all three benefits. Tax deduction in tax free growth and tax free on the way out. And remember, there's no income phase outs, no restrictions based on how much money you make, and no requirement that you itemize your tax deductions. As long as you qualify with the right type of insurance, you get the deduction. So how do you qualify for an hsa? Here's the current rules. To contribute to a health savings account that you can set up anywhere you want, you just have to have a high deductible health care plan that qualifies under IRS rules. Now, where you get your insurance can be different than where you get your health savings account. You don't have to do it at the same place. The exact numbers change year to year, adjusted for inflation. So always check the current limits. But in 2026, those filing as a family or head of household could contribute $8,750 into the HSA. If you were single, it was 4,400. But the structure has always stayed the same. Now, if you're generally healthy and not using your insurance that often, this is where the HSA shines. So you're essentially getting a higher deductible and a lower premium so you can put money away for the future into your HSA and get a tax deduction. You're essentially saying, I'll self insure for small expenses and keep catastrophic coverage if something major happens. Now, if you're generally unhealthy, you can still have one of these high deductible plans with all the benefits of the insurance and still contribute to an HSA every year. You can change. You could have an HSA qualifying plan one year and not another year. Put money in this year, just keep it investing in the next year where you may have a different type of insurance plan, you get to keep your health savings account and take it anywhere you go. Then you get the right insurance one year versus another insurance plan, depending on your situation. Then in one year versus another, you get the insurance that serves you best. The HSA continues to chug along, growing tax free. And your contribution go in when you have the right type of policy. Well, this account is not about having medical problems. It's about preparing for medical expenses before they become a problem. So when you're healthy, you want to be funding that health savings account, getting a tax deduction on your tax return and investing inside the account, letting it compound and avoid draining it every year until you really need it now. Later in life, when medical expenses start to add up for a specific type of surgery, or maybe you have a child or you're just getting old, that account becomes incredibly valuable. This is Long term thinking, building wealth tax free for one of the biggest costs in your life, medical expenses. So the sooner you get started building your hsa, taking the tax deduction to do it, the better. Now let's talk about investing your hsa. This is where it gets really fun. Most people never realized how powerful the HSA could be because they think Wall Street's going to control your health savings account. The actuality is you get to self direct your HSA and invest it in any anything you want, mutual funds, ETFs, even special types of assets called alternative assets. You can invest in real estate, private equity, gold, silver. I've even invested my HSA in a rental property and even in livestock. That's right, cows on a ranch near mine. Now, when those investments grow inside the hsa, the growth again is tax free. And then when you sell those assets, the money goes back to your HSA tax free. And then you get to pull it out when you need it for medical expenses. This is how people end up with HSA balances that are far larger than their annual contribution or their annual medical costs. They start to snowball it and grow it for when they really need it. Now if you go to directed ira.com where I serve on the board of directors, you can actually go on the app or the website itself and open an HSA in minutes, contribute to it, and by tomorrow you're even buying cryptocurrency gold Silver Investments LLCs that you want to partner in with friends or family. And it's amazing. Now, how do you reimburse yourself now or later when that account starts to grow? Here's a rule many people miss. You don't have to reimburse yourself immediately. Let's think about that for a minute. If you're building that account and growing it and keeping receipts of what you might spend with your medical expenses, you can pile those up and reimburse yourself three years from now. It doesn't matter. You just pay for those expenses out of your pocket, keep a ledger of all those medical expenses and reimburse yourself at the end of the year or many years to come and just drain that account tax free, whenever you want. That way you can let the investments continue to grow, keep track of your medical expenses and pull out the money when it's most advantageous to you. Now the key there is documentation and timing, not urgency. Try to keep your best records on your medical expenses. Put it in a digital file somewhere and then when that time comes, write yourself a check tax free. Now what happens when you turn age 65. Well when you reach Medicare age, you can no longer put new money in and take a tax deduction, but the account is still yours. You can continue to grow it, invest it or pull it out for medical expenses when you might need it most. But if you pull it out for non medical withdrawals, they're just treated like an IRA and you have to pay taxes, but there's no penalty. So if you never use it for medical, it still functions as a retirement account. You'll never lose the money. Now if you die while that money is in your hsa, that money goes into your spouse's HSA or into an IRA type function where your family members can pull it out and pay taxes if it was just an ira. So what are those? Asset protection and legacy benefits? See the HSAs have a strong asset protection feature in many, many states because the government, state legislatures have said we know that people are going to have a lot of medical expenses and these HSAs are like gold. We've got to make sure that people can use for medical expenses and not stress out the Social Security or Medicare programs. So an HSA is generally protected from creditors, lawsuits, even bankruptcy claims. And when you pass away, remember what happens. It goes into your spouse's HSA and non spouse beneficiaries get to treat it like an ira. That makes this account useful not just for you, but for your family and protects it from potential lawsuits. Now what are some common mistakes to avoid? Well, it usually starts in the execution of setting up the HSA and properly funding it. First is not having a qualifying HSA plan. So when you go to your employer and choose your insurance plan or even if you're an entrepreneur, a small business owner, when you choose your health insurance plan, make sure it typically has a little blue check mark or something that says this is an HSA qualifying plan. That's all. Next. Another mistake is that I'm going to set up my HSA plan with my insurance company. They don't care, they don't offer HSA plans, they just offer the insurance plan. Then you're going to go online to your bank or to directed IRA and set up a health savings account. Like you might set up an IRA or a Roth account with a broker dealer like a Wall street plan. So you're going to go set up your HSA somewhere else. Then you set up your health insurance. Next, a common mistake is using that HSA money for something non qualified medical expense or commingling it with your personal funds. Once you open up that HSA account, you've got to respect it, treat it differently, like an investment account, like an IRA or a Roth account. So make sure that you're not having a prohibited transaction take place by commingling it with personal funds or taking distributions that are not for medical. Well, that brings up another mistake and that's not investing the account, being afraid to even touch it or do anything with it. Don't worry about that. Make sure it's making you money while you're sleeping. Leaving it alone, just cash is not a good idea. And bottom line, this account rewards self discipline. Meaning let it grow, invest it, take that write off every year and pretty soon that thing's going to snowball into a huge account that'll bless your life for many years to come. So how do you think about an HSA in today's tax environment? Well, with health care costs rising every year and tax rules constantly changing or getting more complex, flexibility matters. But the HSA remains one of the most stable tools in the tax code. It has not changed at all in the last 15 years. It's still one of the few deductions regardless of your income and is on the front page of your tax return in one of the most advantageous places. Finally, it's one of the most flexible accounts for investing and for future planning. Used correctly, it can play a huge role in your medical planning, retirement planning, tax planning and wealth preservation. So in summary, remember, a health savings account isn't about saving just a few dollars at the pharmacy or writing off your next doctor visit. It's about building a tax efficient system that supports your health, your retirement and your long term wealth strategy all at the same time. When you understand these rules and use the account intentionally, the HSA becomes one of the most powerful but often overlooked opportunities available to business owners and families today. If you're thinking about using an HSA or want a second opinion on whether your current structure, your tax and legal structure is optimized under all of these tax rules. Please have an appointment with one of my lawyers at the KQS team. Our KQS lawyers will help put together a comprehensive plan, build you a trifecta, and put your HSA amongst other tools, in your overall structure. And if this video was helpful, do me a favor, hit the like button, subscribe to the channel and turn on notifications so you don't miss any of my future videos. Thanks for watching. I'm Mark J. Kohler and I'll see you in the next video.