How you can use health savings accounts to accumulate tax-free money.
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Speaker 1 (00:07):
Welcome back to 30 Minute Money, the podcast that delivers action oriented smart money ideas and bite-sized pieces. Are you getting hungry yet? , we've got a lot of information for you today. We're gonna be talking health savings accounts with Steve Wershing from Focused Wealth Advisors.
Speaker 2 (00:23):
Yes, we are. Hey, Scott. How you
Speaker 1 (00:25):
Doing? How you doing? I'm, I'm doing great. Uh, always interested in learning more about this wonderful money thing, this money thing, these financial,
Speaker 2 (00:33):
What's all this about? Money? Yes.
Speaker 1 (00:35):
So health savings account, this is, this is one of the dark areas, the dark horses for me. So I'm, I'm interested in learning more.
Speaker 2 (00:41):
Yeah. Well, and, and health savings accounts are actually kind of an exciting thing. So our tax regulation now runs about 4,500 pages long. That's exclusive of interpretations and tax law cases and that stuff. That's just the code. And in all of those thousands of pages, there is exactly one honest to goodness tax dodge. And that means you can get money and spend money without ever having to pay tax on it. And that is the health savings account.
Speaker 1 (01:13):
And I'm interested in this cause we have an hsa, so, excellent. I wanna learn more because my wife does all that stuff and Okay. I, I want, I want to act like I know something. So Go ahead, .
Speaker 2 (01:22):
So here, it's, so when I say it's a tax dodge, what I mean is that, um, it's a kind of account that, again, you can defer salary into it. So you know, the money goes into it before it's taxed. It can grow, you can invest that money and it can grow without being taxed. And when, if you pull it out for the right purpose, it's not taxed when you pull it out, so it's never taxed. Mm-hmm. There's no other kind of plan. Like retirement plans are either tax free on the way in and taxable on the way out, or they're after tax on the way in and tax and tax free on the way out. But there, there's no other kind of an account that's tax, pre-tax going in, tax free coming out. You
Speaker 1 (02:04):
Can invest the money that's in an hsa, you
Speaker 2 (02:07):
Can Yep. Once you have above a certain balance. Okay. Most HSA accounts will connect with some kind of an investment platform. And, and you can put that story, it's kind of like having another ira. Huh? It's just an IRA for a very specific purpose.
Speaker 1 (02:21):
I did not know that. That's very interesting.
Speaker 2 (02:23):
So there it is. Yeah. Well, I mean, if that's what, if that's one thing you take away from this episode, then good for you. That's very valuable. Because if you can build it up over the course of time, and if you can put it to work, if it's not just in a, like a savings account kind of thing, it can actually make some money for you. So, yeah. So that, that's a good thing to keep in mind. We
Speaker 1 (02:40):
Use our HSA all the time. I mean, that's, that's our, like, our family of five. Yeah. Constantly using that.
Speaker 2 (02:50):
Yeah. So the way that you're using it means that you get to pay your medical expenses essentially with pre-tax money. Right. So that's good. If you can swing it, if you can leave the money in there, um, you can actually get more value from it. And so that's, you know, that, that's what I, I, if I recommend a lot of people do this, is if you can put money into your HSA and then pay for medical expenses out of pocket, then it has a chance to compound for you. Now you've got kids, you know, so you've got a family, it may not be possible, you know, because you know, if the medical bills are, are, you know, at, at a level where it's just not really feasible to do that, to put away all this money and then pay medical bills separately. I totally get that.
But if you can work it out in the long term, it can actually make you a lot more money. Hmm. And that's, you know, like I, I, I max out my HSA contributions, and when I go to the chiropractor every few months, I just pay 'em cash. I just pay 'em, pay 'em outta my pocket, and I, I just leave it in there making money because, you know, my, my medical bills aren't very high. You know, I'm pretty healthy and don't consume a whole lot, you know, and, and we, we tend to consume a lot more medical care in retirement. And so having a, a source of tax free money to pay for those bills in retirement when they're bigger, potentially a bigger benefit to you.
Speaker 1 (04:14):
Very interesting. Now, I assume there's some sort of catch, there's some sort of, uh,
Speaker 2 (04:19):
Yeah, so, so two a few limitations on it. Um, I don't know that I would call it a catch, but limitations, it's the rules. Yeah. The rules you gotta live by. So one is, if it's just for you, if it's just an individual, you can put in $3,600 a year. Um, if you are putting in for a family plan, you can put in $7,200 a year, and if you're over 55, you can put in another thousand dollars. So one limitation is you can't just shovel money in there. I mean, you do have some limitations, and it's really only el you're only eligible for it if you have a high deductible, uh, health insurance plan. Mm-hmm. high a uh, yeah, high deductible healthcare plan. Yeah. And so you need to have that kind of plan to have an HSA in the first place. So th those are some of the catches. And then the other big catch, of course, is what you use the money for. So, um, it's, it's money that's designated for medical expenses, and if as long as you use it for medical expenses, then it's tax free. Now, if you're over 65, you can take money out of that account without a penalty, but if you don't use it for medical expenses, it's taxable. So that's kind of the catch is, is, you know, um, you can really, yeah, it's really specifically for a purpose.
Speaker 1 (05:30):
And what are the investments that they have for this account? It's just all kinds of investments.
Speaker 2 (05:35):
It's, it's really, it's kind of like a 401k. I mean, typically they'll, they'll have the HSA connected to some kind of a platform, just like a 401k would be connected to a platform. It might be Vanguard, it might be Fidelity, it might be, you know, some other mm-hmm. Mutual fund company is similar to that. I mean, you can't just get anything in it in an hsa, typically it would be connected to a company that manages things, and, and they'll have a, you know, limited menu of things that you can choose from. But usually it's, it's wide enough that you can have, you know, a pretty well allocated portfolio in things like mutual funds and just let them grow over time.
Speaker 1 (06:08):
And, but you still have to use that money for your
Speaker 2 (06:10):
Healthcare. That's right. That's right. Yeah. That's, so that's, if there's catch, that's the
Speaker 1 (06:14):
Catch. You can get really, really good healthcare if you do it right,
Speaker 2 (06:17):
, you can, and who knows what it's gonna look like in a bunch of years. I mean, as, as more people, you know, as more people retire and get older and, and as if the healthcare finance system that we have doesn't get any better, you know, and, and people look more to concierge medicine or Yeah. You know, to those kinds of things. Well, these things could be even more valuable because, you know, it, there are a lot of things, there are more and more things that, that, uh, retirees especially are taking advantage of medically, um, that are not covered by insurance. So concierge medicine is, is a good example of that. You know, it's, it's specifically outside the health insurance system. And so you need some resources if you're gonna be able to leverage something like that. And having a lot of money in an HSA is one way of being able to afford it.
Speaker 3 (07:04):
Your retirement is at risk, not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial planner, Steve Waring and I specialize in helping people create low tax retirements. Unmanaged taxes can take 30, 40, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar will cover all the principles you need to know to protect your money for you and your family, and keep it away from the government. This free webinar will cover how taxes are different in retirement, the taxes you pay in retirement that you don't have to pay during your working life. How to move tax savings into a tax-free environment. The Widow's Tax, the Secure Act, the Secure Act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot. So go to focused wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next five or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
Speaker 1 (08:30):
All right. 30 minute action item,
Speaker 2 (08:32):
30 minute action item is check your a if you're, if you're eligible for an hsa, check your contributions and see if you're maximizing them. Are you maximizing your HSA contributions? That's your 30 minute action item.
Speaker 1 (08:44):
All right. Well, thanks for listening to 30 Minute Money. 30 Minute Money is the website you can, uh, share and like, and subscribe and all that good stuff. Find Steve at Focused Wealth Advisors. Find me at fitz rocvox.com and we'll catch you next time.