How a 31-Year-Old Millionaire Turned Health Savings into Wealth Building: A Personal Finance Journey

Meet Brennan Schlagbaum, a 31-year-old millionaire who, alongside his wife Erin, successfully paid off over six figures in debt and now boasts a net worth of nearly $2 million. In their pursuit of financial freedom, the couple has adopted a strategic approach to investment, managing a diverse portfolio across seven different accounts. Amidst various investment options, Brennan singles out his Health Savings Account (HSA) as his “favorite by far.” Let’s dive into how the Schlagbaums are leveraging their HSA to build long-term wealth.

A Holistic Investment Approach:

Brennan’s investment strategy is refreshingly straightforward – predominantly investing in three index funds while effectively managing multiple accounts. Their investment portfolio encompasses two Individual Retirement Accounts (IRAs), a solo 401(k), Erin’s Employee Stock Ownership Plan (ESOP), an HSA, a taxable brokerage account, a 529 plan for education expenses, and a high-yield savings account earmarked for annual property taxes.

Managing Property Taxes:

With their primary residence in Texas fully owned, the Schlagbaums face a unique financial challenge – annual property taxes of $12,000. To address this, they allocate $1,000 per month to a high-yield savings account, ensuring they can cover this significant expense at year-end.

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The Power of the Health Savings Account:

Despite having an array of investment vehicles, Brennan highlights his HSA as the standout favorite. This sentiment is grounded in the HSA’s unique features, particularly its triple tax advantage. Contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free as well.

Strategic Use of HSA Funds:

While many use HSAs to cover immediate medical expenses, the Schlagbaums are taking a different approach. Despite facing substantial medical bills related to their daughter’s diagnosis with Dravet syndrome, they opt not to touch their HSA funds. Instead, they cover out-of-pocket expenses with cash flow from Brennan’s business, allowing the HSA to grow and accumulate.

Planning for the Future:

Brennan emphasizes the long-term potential of his HSA. By maxing out annual contributions, currently set at $7,750 for families, he ensures the account is primed for growth. The contribution limit itself serves as a testament to the HSA’s efficacy as a tax-saving tool.

Flexibility and Future Planning:

Beyond its immediate benefits, Brennan sees the HSA as a strategic tool for retirement planning. At 65, the HSA can function as a traditional IRA, offering flexibility in how the funds are utilized. This foresight underscores the Schlagbaums’ commitment to maximizing the potential of every investment vehicle in their financial toolkit.

Considerations for Health Savings Account:

Brennan acknowledges that HSAs are not a one-size-fits-all solution. Enrolling in a High Deductible Health Plan (HDHP) is a prerequisite for HSA eligibility. While it’s a tax-efficient option for healthy individuals, Brennan advises careful consideration of the potential out-of-pocket costs for those with higher medical needs.

Conclusion:

Brennan Schlagbaum’s financial journey provides valuable insights into the strategic use of a Health Savings Account for long-term wealth building. By combining a disciplined investment approach with a keen understanding of the unique advantages offered by each account, the Schlagbaums exemplify how thoughtful financial planning can pave the way to financial success and security.