I believe anyone can become a 401(k) millionaire, but becoming a health savings account millionaire is a bit more complicated. However, given enough time, the benefits of becoming an HSA millionaire are huge. You will likely need to be married, have a high deductible health insurance plan, and have a few decades before you are eligible for Medicare to reach this significant financial milestone.
With nearly 72 million Americans being covered by a health savings account (at some level), at least a few should be well on their way to becoming health savings account millionaires.
1) Open A Health Savings Account
Sometimes, the most challenging part of anything is just getting started. Opening a health savings account is the first step to becoming an HSA millionaire. Don’t be scared; it is straightforward.
Your employer may already have an HSA provider chosen for you, and all you have to do is fill in a little bit of paperwork. If you are self-employed, you need to select your own HSA provider.
2) Contribute Enough Money To Your HSA Account
Assuming your goal is to minimize your lifetime tax liability or become an HSA millionaire, you will want to make the maximum contribution to your account each year. For 2024, the maximum HSA contribution is $4,150 for singles and $8,300 for married couples.
The annual contribution limits will hopefully continue to increase and enable more people to get on track to become HSA millionaires. At the very least, higher contribution limits will allow more people to have tax-free income to help pay for healthcare in retirement.
3) Invest Your Health Savings Account Contributions
The money you contribute to your health savings account is triple tax-advantaged. This could make these funds an even better retirement account than a Roth IRA. For an HSA, your contributions are tax-deductible, which is great, but there are better advantages. Your account can grow tax-free; you won’t owe taxes on capital gains or dividends. Lastly, you can withdraw your funds tax-free when used for HSA-eligible medical expenses.
Getting on track to becoming a health savings account millionaire without contributing $1 million into your underlying account will require investing your contributions. You will need some of the magic of compound interest to turn $8,300 annually into a million-dollar retirement account.
4) Take The Time To Become An HSA Millionaire
With relatively low annual contribution limits, becoming an HSA millionaire will take time. Here are some rough calculations to help you become an HSA millionaire, depending on how well your investments perform in the long run.
Assuming the current HSA contribution limit of $8,300:
With a 4% return, you will need 45 years to become an HSA Millionaire.
With a 6% return, you will need 36 years to become an HSA Millionaire.
With an 8% return, you will need 30 years to become an HSA Millionaire.
With a 10% return, you will need 27 years to become an HSA Millionaire.
As you can see, even with healthy stock market returns, you will need a long time to let your money grow to become a millionaire with your HSA account.
5) Don’t Raid Your Health Savings Account
Following the four steps above should help you get on your way to becoming an HSA millionaire. However, if you make the mistake of raiding your health savings every time you have a medical expense, it will be much more difficult, if not impossible, to build a million-dollar health savings account.
Don’t worry; you can still reimburse yourself later for today’s medical bills. There is no deadline to be able to reimburse yourself for medical bills from your health savings account. So, set up a file on your computer (or in the cloud) and save all the medical receipts in one place.
Once you retire, you can turn your health savings account into a source of tax-free retirement income by reimbursing yourself for past medical expenses.
Technically, you cannot pay your Medicare premiums from your HSA. But yes, you can use your HSA funds to pay your Medicare premiums. Keep reading as we explain.
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