Great Advice for Grads 2023

HEALTH SAVINGS ACCOUNTS: THE TRIPLE THREAT When exploring any new medical benefits you may be offered, it’s worth considering a health savings account. Health savings accounts, or HSAs, function as bank accounts for health-related costs. You save up money in the HSA, and then when you have health-related expenses, you can use the funds in your HSA to pay for them. HSAs have a triple tax advantage: The money you put in reduces your taxable income; investment growth inside an HSA is tax-free; and qualified withdrawals (those used for medical expenses) are tax-free. And since the money in an HSA never expires, investing in an HSA — similar to how you would through a regular brokerage account or individual retirement account — can help you build wealth over time. “Consider [HSAs] a supercharged retirement account because you get the benefits of both a traditional IRA and a Roth IRA in terms of the tax deduction,” McLaughlin says. “When you make that contribution at the start, you get tax-free growth, and you can have tax-free withdrawals if it’s used for medical expenses, and if you ended up not using it for medical expenses, you can still spend it in retirement as if it was a traditional IRA or 401(k), and you just pay the income tax.” One potential downside of HSAs is that they’re paired with high-deductible health insurance plans, which means you’ll likely be paying out of pocket for your health expenses until you hit that high deductible. According to 2021 research from the Kaiser Family Foundation, the deductible can be pretty high: The average general annual deductible for single coverage is $2,454 for HSA-qualified high-deductible plans and $4,572 for families. EMPLOYEE EQUITY: A WAY TO BUILD WEALTH There were 13.9 million participants in employee stock ownership plans in the U.S., according to 2020 data, the most recent available, from the National Center for Employee Ownership. Employee equity can be a great vehicle for building wealth: In 2020, those employee stock ownership plans paid participants more than $149 billion. But equity can be confusing, and it can come in several forms. Employee stock options allow you to buy a certain number of company shares at a specified price during a specified time. Restricted stock units, or RSUs, are similar to stock options, but you don’t have to purchase them. The stock simply becomes yours when it vests. Some companies offer an employee stock purchase program, or ESPP, which allows employees to purchase shares at a discount, often via payroll deductions.


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