The Triple Crown: From Horse Racing Glory to Investing Strategy
The first Saturday in May? Pure legend in Louisville, Kentucky. With a week of events, parties, and plenty of seersucker, the Kentucky Derby draws out anyone with a flair for fascinators and a taste for mint juleps. But for racing fans, it’s just the beginning. The Kentucky Derby kicks off the three-race gauntlet of securing the elusive title – the Triple Crown. This title, achieved by winning the Kentucky Derby, Preakness Stakes, and the Belmont Stakes, is reserved for only the elite champions.
Lucky for you, there’s also a Triple Crown in investing—and this one’s actually within reach. Meet the Health Savings Account.
Retirement accounts are called qualified accounts because they qualify for certain tax advantages to the investor, incentivizing individuals to save for their retirement. The traditional or pre-tax retirement accounts will typically receive tax-deductible contributions as well as tax-deferred earnings treatment. Only when you withdraw funds from these traditional qualified accounts do you pay taxes on the funds.
Then, Roth or after-tax retirement accounts were introduced. Foregoing the tax-deduction, contributions go into these accounts already taxed. Not only do the earnings grow tax-deferred, but when you withdraw the funds, the withdrawals are tax-free.
Then, in 2003, the Health Savings Account (“HSA”) was born. It’s not technically a retirement account—which means you can tap into it before retirement age—but it still comes with some of the best tax perks in the game to encourage individuals to save for the costs of health care. Contributions are tax-deductible, earnings are tax-deferred, withdrawals are tax-free. That’s the Triple Crown right there.
In my experience, this golden opportunity is often overlooked or at least misused by individuals, who end up focusing on using the tax-deductibility aspect to save for current health care costs. But with a little high-level planning (and yes, a solid financial planner in your corner), you’ll see how powerful this account can be over a lifetime because – spoiler alert – health care costs are the fastest growing category of spending in retirement according to J.P. Morgan Asset Management’s retirement research.
If you own a Health Savings Account, this is an account that stays with you regardless of employment – think of it like any other savings account. Plus, you can name a beneficiary on the account so that it stays with your loved ones upon your death. And if you plan to use the account to invest the contributions for long-term planning, you’ll want to have the liquidity to cover any near-term health costs.
There can be tricky nuances to using the HSA in your personal financial strategy. While I often find it beneficial for clients to take advantage of the opportunity, it doesn’t always make sense or seem advantageous to do so in certain circumstances. Curious if the HSA Triple Crown belongs in your financial winner’s circle? Let’s talk—email me at lobrien@xmlfg.com.
* J.P. Morgan Asset Management Guide To Retirement
This communication is for informational and educational purposes only. No content or reference is intended to be a recommendation for the sale or investment in any product, strategy or service nor should it be perceived as individual advice. Please seek the advice of a financial advisor regarding your particular financial situation. Visit xmlfg.com for more information.
