How One Millionaire Uses a Health Savings Account HSA to Build Wealth

  • Brennan Schlagbaum and his wife paid off six-figures in debt and now have a net worth of nearly $2 million. 
  • The couple invests in index funds across various investment accounts, from IRAs to a brokerage account.
  • Of all of his different types of accounts, his favorite is his health savings account (HSA).

Brennan Schlagbaum has a simple approach to investing — he puts most of his money in three index funds — but he does have a lot of accounts to juggle.

The 31 year old, who paid off more than $300,000 worth of debt with his wife Erin before building a net worth of nearly $2 million, has his investments spread across seven different types of accounts. 

He and Erin have three types of retirement accounts: two individual retirement accounts (IRAs), a solo 401(k), which is an individual 401(k) plan specifically for business owners like Brennan who don’t have employees, and Erin’s employee stock ownership plan (ESOP) from her previous employer.

Additionally, they have a health savings account (HSA), a taxable brokerage account, a 529 plan (a type of investment plan that offers tax-free earnings and withdrawals for qualified educational expenses), and a high-yield savings account, which is where they set aside money for property taxes that they owe at the end of each year.

“Since we don’t have a mortgage, we owe property taxes at year end,” explained Schlagbaum. He and Erin, who own their primary residence in Texas outright, owe $12,000 in property taxes each year, so they send $1,000 a month to a high-yield savings account to cover that expense. High-yield savings accounts, which earn multiple times more than a traditional savings account, typically return between 3.40% APY and 4.25% APY

Of all of his accounts, “my HSA is my favorite by far,” said Schlagbaum, who quit his CPA job in 2021 to focus on his financial education business Budgetdog full-time. 

Insider verified the Schlagbaums net worth by looking at account screenshots and a copy of their personal balance sheet.

Maxing out his HSA, not touching the money, and letting it grow tax-free 

An HSA is a savings vehicle that lets you contribute pre-tax dollars for health costs, but it can also be used as an investment tool and to supplement your retirement accounts.

Similar to an IRA, you can make annual contributions to an HSA (the contribution limits for 2023 are $3,850 for individuals and $7,750 for families) and you get significant tax perks. In the case of an HSA, you actually get a triple tax advantage: You can contribute pre-tax dollars (which reduces your taxable income), your contributions and earnings grow tax-free over time, and you can withdraw your money tax-free to cover qualified medical expenses. (Also like an IRA, you can invest your HSA balance in mutual funds, stocks, or ETFs, depending on what the plan offers.)

If you withdraw money for something other than a qualified medical expense (which include things like doctor’s office visits and co-pays, lab fees, and vaccines), you’ll pay ordinary income taxes on the withdrawal and owe a 20% early withdrawal penalty. (That’s if you’re under 65; after 65, you can use your HSA money to cover any expense without incurring a penalty.)

brennan erin Schlagbaum

The Schlagbaum family.

Courtesy of Brennan and Erin Schlagbaum

The Schlagbaums happen to have a lot of medical expenses currently, as their daughter was diagnosed with Dravet syndrome in 2022. 

“Her medical bills have totaled quite a bit,” said Schlagbaum. “In 2022, they were $200,000. Of course, insurance does cover a lot of that.” But for whatever out-of-pocket expenses they’re on the hook for, “we have the ability to pull that money tax-free at any point in the future. It gives us a lot of flexibility down the road.”

HSA accounts, unlike FSAs (flexible spending accounts, which are another type of account that can help with health care costs) don’t have a “use it or lose it” policy. Any unused funds in your HSA automatically roll over to the next year.

While the Schlagbaums can use their HSA funds for their medical costs right now, they opt not to. They’re in a financial position where they can afford to pay out-of-pocket with the cash flow from Brennan’s company, meaning their HSA money can continue to grow.

“I’m going to let that money sit there and invest for years to come,” said Schlagbaum. “It’s a really good strategy, not to mention, at 65, the HSA becomes a traditional IRA. So we have flexibility from that angle too; I could treat this as a hybrid retirement account. Or, I could use all those savings eventually for any medical costs that we have at that point in time.”

He contributes the maximum amount each year, he said: “The limit this year is $7,750 per year, so every two weeks that equates to about $298.07.” 

The fact that there’s a contribution limit is “a sign that it’s a really good account from a tax-savings perspective, he added. “There’s a reason they put a cap on it. So, if we put all of our $7,750 in there, we want to make sure all of that is invested and not touched.”

Note that, to use an HSA, you have to be enrolled in a high deductible health plan (HDHP), a type of health insurance plan that typically comes with lower monthly premiums but higher out-of-pocket costs. 

This type of plan is not the best choice for everyone. It’s typically well-suited for people who are very healthy and don’t plan on seeking medical care frequently.

“If you’re a healthy individual or you’re single and you don’t have a lot of medical visits, the HSA can be a great route,” said Schlagbaum. “The opposite side of the spectrum is me and our family: the person that has the babies and the health concerns. That can get expensive.”

They can afford to pay their deductible upfront, though, and are comfortable with their plan’s out-of-pocket max, which is the most you could spend on covered health care in a year.

If you’re interested in going the HSA route, look closely at the deductible and out-of-pocket max when comparing plans.

“You have to be aware of the potential cost that could come if you do have to go to the doctor,” said Schlagbaum. “A lot of people go down this route and they get an HSA because they hear someone online talk about it, but all of a sudden it becomes a nightmare because they’re out-of-pocket all this money.”

Depending on your medical and financial situation, going with an HDHP “could end up being more expensive,” he warned. “You have to make sure you can afford the out-of-pocket max.”

This story was originally published in July 2023.

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