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Most people have never heard of a 401h plan. In fact, when mentioned in print, a lot of people assume it’s a typo. However, a 401h plan is the most exciting changes to the IRS code since 2006 when the change was made in the Pension Protection Act. The change was made to benefits retirees who often dip into their savings or tap into their taxable retirement income to pay for out-of-pocket medical expenses. Wealth CAP, a team of investment consultants, includes 401h plans as part of their dynamic bucketing portfolios (DBPs). Below, we’ll review what a 401h plan is, what the benefits of a 401 are, what are the disadvantages, and how you can use it as part of your diversification strategy. Contact Wealth CAP today for your free consultation!

WHAT IS A 401h?

The 401h plan is a retirement plan set up to cover medical expenses. It covers costs related to hospitalization, accidents, or illness for retired employees. The plan would also pay for the medical expenses of dependents (as children) and spouses.



Employers set up 401hs, meaning, unlike an IRA, you cannot have one unless your employer has one. An employer is allowed to deduct 100 percent of their 401h contributions to fund the plan that former employees take out when needed. A 401h account is separately funded and managed. All the contributions made by the employees in the plan are tax deductible. The funds are drawn upon once the employee is retired for health expenses.



401 h plans are cafeteria plans just like 401k plans, meaning that employers have to manage the plans for employees. However, 401k plans suit more people, as the plan can be used for any retirement costs, not just healthcare. That being said, the 401h is more suited to certain types of occupations than others.


The employees who are most likely to benefit from 401h plans are well-compensated business owners, 1099 employees (those who are most likely self-employed or who are independent contractors), and medical professionals approaching middle age; in fact, when asked, physicians in their 40s, 50s, and 60s are often cited as the most appropriate 401h candidates.


Sadly, due to the fact not many investment consultants and CPAs are familiar with 401h plans, most individuals who would benefit from the 401h plan never take advantage of them.


The cost to implement and maintain these plans is far outweighed by the benefits these plans offer, which can potentially lead to some of the best ROI in the IRS tax code. If your investment consultant does not know about the 401h plans, ask him or her to investigate them for you if you think you’d be a great candidate for one. Optionally, you can contact the investment professionals at Wealth CAP who regularly utilize 401h in our dynamic bucketing portfolios (DBPs) as part of our mission to offer you the best diversified investment portfolios. Contact us today!




  1. 401h plans can be funded with tax-deductible money.
  2. Funds deposited into 401h plans are allowed to grow tax-free.
  3. Funds withdrawn by 401h account beneficiaries once they retire are tax free.


Hence, you have one of the few investment opportunities where you don’t have to pay any income tax on money you earn. Due to this fact alone, a 401h plan is very much recommended for those interested in wealth preservation and asset protection in retirement.


Another advantage 401h plans offer that many other retirement plans designed to cover healthcare costs don’t offer is their list of qualified benefits. 401h plans will cover some elective surgeries that other companies will not. These include:


  • Elective cosmetic surgery procedures
  • Spa and fitness programs
  • Lasik eye surgery
  • Designer eyeglass frames
  • Acupuncture
  • Braces
  • Viagra
  • Weight loss programs
  • And many more


401h plans are similar to voluntary employee beneficiary association (VEBA) plans. They both are meant to help retirees pay for healthcare costs in retirement. You are allowed to have both a VEBA plan and a 401h plan.



  • 401h plans can be complicated to set up and to maintain for employers.
  • Not the best retirement instrument for some employees.
  • Must have an employer who offers 401h plan.
  • Can only be used for qualified medical expenses in retirement.


Wealth CAP, an online investment company, understands the value of diversification and not having all of your eggs in one basket. Market instruments are too easy to overlap with other market investments, which might not spread out your desired level of risk effectively. When you have professional investment consultants manage your retirement strategy and the instruments your money is in, you’ll achieve the perfect asset class diversification. 401h plans are great tools to help you achieve the desired protection you want in your retirement strategy.


The reality is that healthcare costs will never go down; they will only continue to rise. In retirement when you are living on a fixed income, you’ll need additional funds available to cover these rising healthcare costs. Supplemental insurance policies and Medicare are just not sufficient to cover all medical expenses that inevitably incur as you age. 401h plans offer another opportunity to help with expenses in the retirement years.


For business owners, 1099 employees, and doctors who own their own practice, 401h plans allow them to fund part of their retirement with deductible money, which results in tax-free distributions during retirement to cover medical expenses. This money is 100 percent tax-free — something we all could use more of.


Wealth CAP has created a unique retirement investment strategy that utilizes dynamic bucketing portfolios (DBPs) in order to maximize gains, protect your investment, and give you the liquidity you desire. We specialize in diversifying your assets using traditional market investments such as stocks, bonds, and ETFs, alternative investments such as oil and gas and real estate, safe investments such as savings bonds and annuities, and 401h plans. We offer comprehensive financial roadmap planning to help you meet your financial goals for retirement. Furthermore, Wealth CAP offers an individual financial wellness education program that features an on-demand financial education program that aims to bridge the financial education gap of individuals.


401h plans are exciting instruments to help people pay for medical costs in their retirement years. Medical care costs are not projected to ever fall, only increase. Having multiple streams of income to help pay for medical costs can help you still maintain your lifestyle if a sudden illness hits. Wealth CAP believes 401h’s can help many people and play a big role in asset class diversification to mitigate market risks. Our mission is to create a unique well diversified portfolio for you that will help you retire with the lifestyle you are accustomed to as well have the finances readily available for the unforeseens in life, which include medical expenses, an amazing opportunity for a missions trip, or a charity you’ve always wanted to support. Legacy planning is also part of what we hold dear. If you’re interested in learning more about 401h plans, assess class diversification, or just speaking with an investment consultant for free, contact Wealth CAP today!