The "Tax Alpha" Calculator

Hover over the chart to see the Tax Alpha grow year by year based on a $1,000 initial investment.

HSA Value (Year 40)

$0

Taxable Value (Year 40)

$0

Tax Alpha (Year 40)

$0

Initial Investment Amount: $1,000

Important Disclaimer & Tool Limitations

This calculator is a simplified projection tool provided strictly for educational and illustrative purposes. It does not constitute financial, investment, tax, or legal advice, and its use does not establish a client-advisor relationship. Do not base any financial decisions on these projections without consulting a qualified professional.

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  • Zero Withdrawals: The math assumes no funds are withdrawn to pay for medical expenses over the entire timeline, which rarely reflects real-world behavior.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.