The "Tax Alpha" Calculator

Hover over the chart to see the Tax Alpha grow year by year.

See how a single HSA contribution grows when free from tax drag. By eliminating taxes on dividends, capital gains, and withdrawals, even a single contribution compounds into a significantly larger balance over time than the same amount in a taxable account.

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HSA Value (Year 40)
$0
Taxable Value (Year 40)
$0
Tax Alpha (Year 40)
$0

Important Disclaimer & Tool Limitations

For education and illustration only — not advice. This calculator is provided "as is" with no warranty. Results are estimates based on your inputs and simplifying assumptions; they are not financial, investment, tax, or legal advice and do not create any advisory or client relationship. Do not rely on this tool as the basis for any financial decision. Consult a qualified, licensed professional regarding your circumstances. Full Disclaimer & Terms.

Key Model Limitations:

  • Constant Returns vs. Reality: This model assumes a flat, constant annual rate of return. Real markets are volatile. A static average cannot account for "sequence of returns risk" or the timing of market downturns.
  • Excluded Costs: Projections do not factor in investment fees, mutual fund expense ratios, or HSA administrative fees, all of which will reduce actual net returns.
  • Regulatory & Tax Changes: The tool assumes IRS rules remain unchanged and that the HSA retains its current tax-advantaged status. Future tax laws are subject to change.
  • Zero Withdrawals: The math assumes no funds are withdrawn to pay for medical expenses over the entire timeline, which rarely reflects real-world behavior.

The Bottom Line: These results are directional illustrations of how compounding and tax-free growth work over time. They are not forecasts or guarantees of future account balances. Your actual results will differ, potentially significantly.

Model Assumptions

1. Market Returns

  • Constant Growth: Assumes a linear, fixed return every year, ignoring real-world market volatility.
  • The 7.2% Benchmark: Based on the "Rule of 72," meaning the invested capital doubles roughly every 10 years.

2. Tax Environment

  • Federal Baseline: Defaults to the standard 15% rate for both Qualified Dividends and Long-Term Capital Gains.
  • Exclusions: Ignores the 3.8% Net Investment Income Tax (NIIT) for high earners and state income taxes. Factoring these in would significantly increase the HSA's actual Tax Alpha.

3. "Tax Drag" Mechanics

  • Internal Tax Payments: Assumes the annual taxes owed on dividends are paid out of the portfolio itself, directly reducing the compounding rate.
  • Buy and Hold: Assumes zero portfolio turnover for 40 years, triggering a single capital gains tax event at the end.

4. Macro & Behavioral

  • Receipt Accumulation: Assumes the user retains enough eligible medical receipts over 40 years to legally justify a 100% tax-free withdrawal.
  • Nominal Dollars: Final figures are not adjusted for inflation. Purchasing power in Year 40 will be significantly lower than today.