The tax-free contributions to an HSA are limited, but any interest/gain made by investments in it is not taxable.
Is it legal to use the HSA as an investment vehicle to get effectively tax-free interest?
- Let's assume I have already contributed the maximum allowed to my HSA for year X.
- I have 10 k$ cash available.
- I 'contribute' those 10 k$ to my HSA on Jan/2/X, and move it into some investments.
- Let's further assume on Dec/30/X it has grown to 12 k$.
- On Dec/30/X, I take the original 10 k$ back out of the HSA, and thereby stay within the contribution limits.
- But I managed to make 2 k$ of interest/gains tax-free (yes, they are locked inside the HSA, and can only be used for, etc., but still, it's 2 k$ tax-free )
It seems like a useful method for certain circumstances. Would that be legal?