HealthyWealth

HealthyWealth to Introduce First-of-Its-Kind Medical Margin Loan with Pre-Tax Autorepayment

Nov 09, 2024By Alan Delta
Alan Delta
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Use Case for HealthyWealth’s Medical Margin Loan with Quadruple-Tax-Advantaged Repayment

Scenario: 
Sarah, a 45-year-old self-employed graphic designer, holds a Health Savings Account (HSA), an Individual Retirement Account (IRA), and an individual brokerage account, all held at HealthyWealth. Financially proactive, she contributes to her HSA and IRA regularly and invests through her brokerage account for future growth.

1. Facing an Unexpected Medical Expense

When Sarah is diagnosed with a chronic health condition requiring surgery, she faces an unexpected bill of $15,000. While her insurance covers a substantial amount, she still needs to pay $7,000 out of pocket. With $3,000 in her HSA, she finds herself $4,000 short.

2. Choosing HealthyWealth’s Tax-Advantaged Medical Loan with Margin Deductibility

Sarah’s options include:
- Withdrawing from her IRA, which would be taxable and might incur an early withdrawal penalty.
- Selling assets in her brokerage account, which could trigger capital gains tax and reduce her future gains.
- Taking a personal loan with a higher interest rate and no tax benefits.

Instead, Sarah opts for HealthyWealth’s Tax-Advantaged Medical Loan at an 8.5% interest rate. This choice combines tax advantages, interest deductibility, and preserves her financial stability.

3. Simple Loan Application and Direct Payment

Application Process: Sarah applies for the $4,000 loan on HealthyWealth’s platform, backed by her HealthyWealth assets.
Direct Payment: HealthyWealth disburses the loan directly to the hospital, ensuring her expense maintains its tax-advantaged HSA status.

4. Automated Triple-Tax-Free Repayment Feature with Margin Deductibility

a. Repayment via Future HSA Contributions:  
Sarah plans to repay the loan through future HSA contributions. By maximizing her contributions over the next two years ($3,850 annually for 2024), she effectively repays the loan with pre-tax dollars, reducing her taxable income. At a 24% tax rate, this contributes $1,848 in federal tax savings.

b. Itemizing with Margin Deduction:  
Sarah can also deduct the interest paid on her medical loan as margin interest on her tax return, a unique advantage of HealthyWealth’s loan. With an 8.5% rate on the borrowed $4,000, her total interest expense will be around $340 over two years. By itemizing this margin interest, she realizes additional tax savings, effectively lowering her overall loan cost.

c. Calculating Effective Borrowing Cost:  
- Interest: At an 8.5% rate, Sarah pays approximately $340 in interest.
- Total Tax Savings: Between her HSA contributions ($1,848) and the margin interest deduction ($340), Sarah’s total tax savings amount to nearly $2,188.
- Effective Borrowing Cost: After tax savings, Sarah’s effective cost of borrowing is negligible.

5. Preserving Investments and Avoiding Tax Penalties

- IRA Protection: Sarah avoids a potential 10% early withdrawal penalty, which would have cost her $400 on a $4,000 withdrawal, along with additional income taxes.
- By not liquidating her brokerage account, she avoids capital gains tax and keeps her assets growing.

6. Additional Benefits: Wellness Incentive and Flexible Repayment

- Wellness Incentive: HealthyWealth reduces Sarah’s loan interest rate to 7.5% if she allocates a portion toward wellness expenses, such as nutrition services and fitness memberships.
- Flexible Repayment: Sarah retains the option to adjust her repayment plan using dividends or other income without disrupting her investments.

7. Financial Advantage for Sarah and a Competitive Edge for HealthyWealth

a. Financial Wins for Sarah:

  • Peace of Mind: Sarah knows she can lean on her margin account in emergency situations
  • Reduced Effective Interest: Thanks to the margin interest deduction and tax savings from HSA contributions, Sarah’s true loan cost is close to zero.
  • Preserved Financial Growth: By maintaining her IRA and brokerage account investments, she safeguards her financial future.

b. HealthyWealth’s Unique Market Position:

- Enhanced Customer Loyalty: The tax-advantaged medical loan, coupled with margin deductibility, offers a benefit traditional lenders can’t match.
- Targeting Financially-Savvy Health Investors: This feature is particularly attractive to customers seeking tax-efficient solutions for health and investment management.
- Increasing Platform Engagement: Offering margin loans that align with HSA, IRA, and brokerage accounts deepens customer reliance on HealthyWealth as a holistic financial partner.

By integrating tax-deductible margin lending into its HSA offering, HealthyWealth delivers a powerful, tax-efficient solution that helps customers like Sarah manage unexpected medical costs without compromising their financial goals, cementing HealthyWealth’s reputation as an innovative, customer-focused financial platform.