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HSA: How to Beat Taxes Like the Rich

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The rich have a different focus. They're not worried about saving for retirement—they’re worried about passing their wealth to heirs without paying too much in taxes.  Taxes are their biggest enemy. And they've figured out how to avoid them. For the rest of us, we don’t have millions to protect. But there’s a powerful tool we can use to save on taxes. It’s called the Health Savings Account (HSA).  Here’s how it works. True Story  I recently went to the eye doctor. Here’s what I spent: Extra test: $39 Ray-Ban frames: $375 Total cost: $414 that I paid with my HSA card. Because the money in my HSA is pre-tax, I didn’t need to earn as much to cover the cost. Pre-Tax vs. Post-Tax Spending Let’s say you're in a 24% federal tax bracket, and you also pay 5% state tax. Your total tax rate would be 29%. Without an HSA (Post-Tax): To pay $39 for the eye test, you’d need $54.93 before taxes.  To pay $375 for the frames, you’d need $528.17 before taxes.  For the total ...
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HSA: How to Beat Taxes Like the Rich

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The rich have a different focus. They're not worried about saving for retirement—they’re worried about passing their wealth to heirs without paying too much in taxes. 

Taxes are their biggest enemy. And they've figured out how to avoid them.

For the rest of us, we don’t have millions to protect. But there’s a powerful tool we can use to save on taxes. It’s called the Health Savings Account (HSA). 

Here’s how it works.

True Story 

I recently went to the eye doctor. Here’s what I spent:

  • Extra test: $39
  • Ray-Ban frames: $375

Total cost: $414 that I paid with my HSA card. Because the money in my HSA is pre-tax, I didn’t need to earn as much to cover the cost.

Pre-Tax vs. Post-Tax Spending

Let’s say you're in a 24% federal tax bracket, and you also pay 5% state tax. Your total tax rate would be 29%.

Without an HSA (Post-Tax):

  • To pay $39 for the eye test, you’d need $54.93 before taxes. 
  • To pay $375 for the frames, you’d need $528.17 before taxes. 
  • For the total $414, you’d need $583.10 before taxes.

With an HSA (Pre-Tax):

  • With an HSA, the full $414 comes straight from your HSA account—no taxes involved.
  • Instead of needing $583.10, you only need $414. That’s $169.10 saved.

HSAs Matter

HSAs are more than just a medical savings account. They offer three major tax benefits:

  1. Contributions are tax-deductible: This lowers your taxable income.
  2. Growth is tax-free: Invest your HSA funds and skip paying taxes on any gains.
  3. Withdrawals are tax-free: Use the money for qualified medical expenses without paying any taxes.

For young professionals, HSAs are a smart choice:

  • Save on taxes now: Every dollar you contribute is a dollar you don’t pay taxes on.
  • Plan for health costs: Healthcare is a must, so why not save for it tax-free?
  • Invest for the future: Many HSAs let you invest in mutual funds and ETFs—essentially, it’s a backup retirement account.

Start Using Your HSA

If you have a high-deductible health plan, open an HSA. Contribute as much as you can afford, use it for medical expenses, and invest the rest.

Your HSA isn’t just for doctor visits or prescriptions—it can also pay for things like bandages, allergy medicine, pregnancy tests, sunscreen, menstrual products, and pain relievers. You can also use it for contact lenses, glasses, dental care, or even therapy sessions.

It’s a smart way to save for future health costs while lowering your taxes—just like the rich use trusts and estate plans.

Do you use an HSA? Have questions about how it works? Let me know in the comments!





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Comments

  1. Craig LFebruary 15, 2025 at 8:55 AM

    I’ve never thought to explore investing HSA funds for tax free gains. Some valuable insights here. Well done, Gem!

    ReplyDelete
    Replies
    1. G LaBrancheMarch 2, 2025 at 7:11 PM

      Thanks Graig! Yes, it it tax free and you can use that money on so many things, not just medical.

      Delete

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