Why to max out contribution to HSA
What is the logic behind maxing out annual contribution to HSA ?
The investment part is the same as your put money into 401k. It’s better since the gain is tax free.
The best part is that u can spend the pre-tax money (for medical use only but the list is rather generous) without penalty.
Forgot to mention some companies will contribute money into your HSA account (i.e. Apple). If u r a healthy individual, the company contribution can cover a large portion of your annual medical needs (90+% in my case including preventive prescription drugs). That leave almost all of my personal contribution saving. So read your company’s benefit plan in details and it can help u plan better.
This would just be a long term investment right ?
You can use the money as soon as you need it.
But there will be penalities if you take it out before retirement for other than medical purpose ?
HSA is triple tax advantaged. Max it out.
If you invest 7K for 30 years, with annual return of 8%, you should have sum of about ~925K tax free for medical expenses. That should cover major portion of medical expenses for you and spouse in retirement . This math assumes annual contribution limit stays at 7K, it wont. You don't have major medical expenses during these 30 years, you may. HSA Laws don't change, they may. But considering social security benefits to wane in future this should be a good backup plan.
Related question: Would it make sense for someone on OPT or H1B (uncertain future in the US) to invest in HSA?
A couple items to consider in my opinion. Can u benefit from the long-term gain tax free? If u r OPT, u may need to withdraw the money out within 24 months if u r not able to secure a full time job. I don’t think that make sense to go through the troubles. If u r on H1B and u believe your job is stable enough for a least the full H1B life (6 or 7 years), then, it start making sense. But u need to read your company’s plan and calculate the math to see what’s the benefit. The benefit of HSA is surely there, if it makes sense for your situation (i.e. healthy single individual + your company also contributing money).
just do it, eventually you will figure it out
So, u can deferred the income tax, and invest the money u don’t need, any investment gain is tax free.