House Republicans Unveil Long-Awaited Replacement for Health Law

[progree]

1. Health Savings Accounts - great tax-avoidance tool for people who can put money aside long-term

Last edited Wed Jun 22, 2016, 02:44 PM - Edit history (1)

Almost every financial planning article I read about HSA's advises using it as a "stealth IRA". They advise paying your out-of-pocket health care expenses using regular taxable account money, and to let your HSA grow -- after all it grows tax free and when you do spend it on medical care say decades in the future, there are no taxes on that "withdrawal". (And you get a nice up front deduction when you put money into the HSA).

http://www.investopedia.com/advisor-network/articles/062116/using-health-savings-accounts-retirement

My point being is that it really isn't doing shit for controlling health care costs, its just another way for people who have money to put aside long-term to shelter savings from taxes permanently. And it helps those in the highest tax brackets the most (the benefits of tax-free compounding and the up-front tax deduction are more-than-proportional to one's tax bracket)

One should watch for these kind of things in Republican proposals -- they typically cut taxes, with by far the vast majority of the benefits going to those in the top tiers of income.

An HSA is like a super-IRA with the best features of a traditional IRA and a Roth IRA -- the up front tax deduction on contributions (like the traditional IRA), with tax-free compounding (like both types of IRAs), and tax free withdrawals like Roth IRAs (if withdrawn to pay medical expenses).

One can withdraw from an HSA to pay non-medical expenses too -- in which case one pays taxes on the withdrawal. Meaning just like a traditional IRA.

Full disclosure: I admit I have an HSA, and both traditional IRAs and Roth IRAs.