The triple-tax free account

August 11, 2023

There is a good chance that taxes will be the largest expense of your lifetime.

In 2021, Americans paid more in taxes ($5.71 trillion) than they did on food, clothing, and housing combined ($4.95 trillion).

Focusing on taxes is important. Especially if you are lucky enough to be high income and/or have a large return on investments.

But taxes should never be the only consideration.

Remember 0% return is technically more tax-efficient than a 20% return, but I'm guessing you'd rather have the 20% return and pay the taxes.

So, I focus on maximizing my net return (investment return minus taxes), which is why one of my favorite strategies is to use a Health Savings Account.

Passive investment, stock market returns, and tax savings?

Sign me up.

The Health Savings Account


Not everyone has access to this account.

To be eligible to contribute, your health plan has to be a High Deductible Health Plan.

Using these plans may make sense when you’re young, in good health, and can afford the deductible.

Or they may be a bad idea if you can’t pay for medical expenses out of pocket.

First, make sure a High Deductible Health Plan is the right fit for you and your family.


The max you can put into an HSA for 2023:

  • $3,850 for an individual
  • $7,750 for a family plan
  • Extra $1,000 if you are 55 or older

Now, here’s the part most people don't take advantage of with an HSA:


Most people spend the money in an HSA right away or let it sit in cash.

If you have significant medical expenses today or anticipate significant medical expenses soon and need the money to help cover it, by all means, use the HSA.

It is there to help you cover medical expenses.

But, if you can afford to pay for medical expenses or don’t have many medical expenses to pay for, you can invest the funds.

What can you invest in?

This depends on your HSA provider.

The HSA provider I use lets me invest in any ETF, mutual fund, stock, or bond I desire.

Now how do we get this money out tax-free?

Track your expenses

I pay for all of my medical expenses out of pocket.

This means I leave my HSA funds alone and invested and pay for expenses using the cash I have.

But I track everything I spend. I add the expense in an excel spreadsheet and upload the receipt.


Because there is no deadline to reimburse yourself from your HSA.

Meaning if I spend $500 on an MRI today and pay for the expense out of my pocket, I can take $500 out of my HSA in 10 years tax-free reimbursing myself for the MRI I paid for 10 years ago.

Completely tax-free.

Now what counts as a qualified medical expense?

Expenses covered

An HSA covers a lot of expenses.

Here is a list of the most common expenses:

Now, what happens if you end up having very few medical expenses throughout your life?

At age 65, you can use your HSA to pay for nonqualified medical expenses, and avoid the penalty.

Meaning now you can take money out and pay for anything.

But you won’t get the money out tax-free, just penalty free.

Just like how an IRA works in retirement.

One important note:

HSAs are not a great account to pass on to a non-spouse beneficiary.

Your spouse can continue to use it as an HSA, but if your child inherits the account: the account stops being an HSA and is taxable to your beneficiary in the year of your death.

Careful planning here is required to be sure you don’t leave your heirs with a large tax burden.