My Path to $2,000,000 in Tax-Free Money

Today's Newsletter:

• Quote From Vernor Vinge

• Triple Tax Benefit

• My March Money Move

• A Money Question

Quote

“Even the largest avalanche is triggered by small things.” - Vernor Vinge

Personal finance has a domino effect. If you knock over the dominos in the correct direction, the effects are massive.

Triple Tax Benefit:

One of the first questions I think about with money is the order of operations.

No one has an unlimited amount of money to invest and we all need to consider the most efficient use of that money. The first step in this process is understanding what types of accounts provide the biggest benefits today and in the future.

As far as tax benefits, there is one account that stands above the rest. It is a Health Savings Account or HSA. An HSA provides a triple tax benefit to the user. This means that you get a current-year tax deduction, future tax-free investment growth, and tax-free distribution of the assets.

Three times you are getting a tax benefit!

What is an HSA?

A Health Savings Account is a type of account that was developed in 2003 by the Bush administration. It was developed to combat rising healthcare costs with a focus on families that were on a High Deductible Health Care Plan (HDHP).

In 2023, an HDHP is a plan with an annual deductible of $1,500 for an individual or $3,000 for a family.

An HSA is built to provide families with a way to make tax-deductible contributions to an account for future healthcare expenses.

In 2023, an HSA has a $3,850 contribution limit for individual plans and a $7,750 contribution limit for family plans. These limits have steadily risen since its inception in 2003.

This means my family of six can make a $7,750 tax-deductible contribution to our HSA in 2023. We did that this week, it will save us more than $2,700 off my tax bill in 2023.

Yet that $2,700 current year tax savings is just the tip of the iceberg when it comes to the tax benefits.

What is the biggest benefit?

The biggest benefit of an HSA is the tax-free growth and tax-free distribution of the money contributed. This means that every dollar I put in can be invested into the stock market for future growth.

Here is the breakdown of my HSA since starting to contribute in 2020:

This money has been invested in the stock market upon contribution. I have earned a 9.89% annualized return leaving me with a balance of $44,625.

The best part is when I use that money for medical expenses in the future there are no taxes on that investment growth.

What can you use the money for?

The short answer is any “qualified medical expense.” This includes Everything from ER visits and surgical costs to dental expenses, mental health services, and prescription drugs, which can all be paid for using an HSA.

So how do I plan to use my HSA?

I am using my HSA as a self-funded long-term care policy. We are living longer and Lord willing I will follow this trend. The downside to living longer is increased medical expenses and care as we age. The most common solution to this cost is to purchase a long-term care policy. The downside to that is these policies are complex and cost ALOT of money.

I am avoiding this by building my own self-funded long-term care policy through my HSA contributions.

Based on current contribution limits (which will rise in the future) and an 8% annualized return. I will have just shy of $2,000,000 tax-free for long-term care at the age of 65.

My friends, personal finance is a game of small decisions compounded over a long time. Start today, continue tomorrow, and let time be on your side.

A Money Question?

Would you rather pay less in taxes today (instant gratification) or pay less in taxes over your lifetime (delayed gratification)?

Work with Jacob

I help families navigating sudden wealth pay less in taxes, coordinate their financial life, and invest for the long run.

 JL Strategic Wealth Discovery Call

Until Next Time, My Friends

JL Strategic Wealth, LLC is a Registered Investment Advisor, located in the State of Missouri. JL Strategic Wealth provides investment advisory and related services for clients nationally. JL Strategic Wealth will maintain all applicable registration and licenses as required by the various states in which JL Strategic Wealth conducts business, as applicable. JL Strategic Wealth renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or pursuant to an applicable state exemption or exclusion. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice.