You could use your Health Savings Account (HSA) to pay for current medical expenses. However, if you can, I recommend that you invest the full HSA amount into the stock market and allow it to grow and compound.

The HSA is the only account that has triple-tax benefits: you don’t pay taxes on contributions, growth or withdrawals (for qualified medical expenses).

Did you know:

  • You can save your receipts for current medical expenses and pay yourself back in the future?
  • You don’t have to have the money in your HSA currently, as long as the account is open, start saving receipts.
  • After the age of 65, you can withdraw money from your HSA for any reason and pay taxes on the gains?
  • This is like having an additional 401k account!
  • Qualified medical expenses include dental, vision, hearing aids, chiropractic care, eyeglasses and more!
  • You can contribute up to $3,600 as an individual or $7,200 as a family
  • Plus an additional $1,000 as a catch-up if you’re over age 55

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Transcript
Mike: [:Julie: [:Mike: [:

Okay. So I'm not going to go over everything to do with HSA today. I want to focus on why, how you should think about it and why, if you can, you should use it as a long-term investment vehicle. All right. So what is the HSA? It's a health savings accounts. It is a type of account that the IRS has lots of rules around because it's got great tax deferred and tax free growth.

It is the only account. That has triple tax benefits. I love saying this, the only account that has triple tax benefits, when you contribute, you don't pay taxes on that money. When it's growing, it grows tax-free, you can make trades and interest and dividends all tax-free. And when you use it for qualified medical expenses, you take it out.

Tax-free the only account in the U S that has the triple tax benefit. So I'm a massive fan of using health savings account, but I'm even more of a fan of using them as an investment account for the future. . And why is that? Because of what I just said, you're getting tax savings across the board and growing tax-free .

Forever. And I love that. Lots of us have tax deferred accounts and taxable accounts. We want to get more money into these. Tax-free accounts and this is another one. , And I think, you know, it's funny the health savings account it's named health savings account, and people think of it like, Oh, okay. This is great.

I put in some money, maybe my employer contributes some money and I'll use it for spending on health expenses because it's called a health savings account. I think we should rename this thing because it's used for health savings accounts, but it's really can be treated as a retirement account.

And that's what I want to get into today.

Julie: [:Mike: [:

So you got to go through all that, but if you have access to an HSA, that's what I'm talking about. Then you can contribute to 7,200, the 7,200 might come from some of your employer. They might put in some money. On your behalf and it's like income to you, but then you take it off your taxes. So it's basically tax-free or you can contribute say three or $4,000 to max it out at the 7,200.

And you take that off your taxes. . So let's say you have a one-time contribution 7,200, and I'm telling you, Hey, you should leave that in there. Don't use it for current health expenses. All right. Why should I do that? If that one-time contribution grows tax-free for 20 years. Okay, that can put an extra 10 to $12,000 in your pocket versus , just paying the current medical expenses from that.

That's just one year and you can do this every year. So $7,200, let it grow for a while. Extra 10, $12,000, in your pocket.

Julie: [:

And that covers, however the HSA will support everything that Medicare, Medicaid doesn't cover. So tell me more about that.

Mike: [:

All right. So yeah. Or you think you're going to have medical expenses later in life? Definitely. Okay, so we'll, we can spend it on those, but here's the real kicker. There's two things and this is why I wanted to highlight it. Perfect question one. You can spend it on things that you have already incurred if you save the receipts.

So what you do is your current expenses. You have an HSA. You're contributing to it. You have current medical expenses, you have a family, you got kids getting stuff. Things go wrong, in and out sometimes some years, but then you have regular copays. You got prescriptions you're picking up and stuff.

You save all those receipts, all your doctor's bills, all your prescriptions dental, eye glasses. There's lots of other stuff we'll talk about. You save all those receipts. You can pay yourself back at any time. There is no limitation. On when you can pay yourself back. So start saving those receipts, let the money compound for 20 years.

And then if you think, wow. I don't know if I'm going to spend all this. You can start paying yourself back. Tax-free

Julie: [:Mike: [:

You got a debit card. You could swipe that for the prescriptions. , current expenses, if you have the opportunity to use just your savings account or checking account to pay for those just using outside taxable money, keep the HSA money growing, tax-free save receipt. Yup. And then just take pictures of them.

Have a digital file. And then years down the road, you can start pulling out thousands of dollars for all that. Once you've allowed it to compound. Tax-free.

Julie: [:

And so now I have a nice, neat file of all of the receipts, because just in case we do get audited, but in the future, all of this money, I can just pay back essentially.

Mike: [:Julie: [:Mike: [:

So say you have this year, like you said, a broken rib and three kids, and we spent $10,000 this year. But you could only contribute 7,200. That's okay. As long as the HSA was established, you can pay yourself back the 10,000 later on. Yeah, 10 years from now, 20 years from now. So in other words, you don't have to have all the dollars in there as soon as you establish it, you can start saving receipts.

Julie: [:Mike: [:

Okay. So there's no penalty. So in that way, it is acting exactly like a tax deferred, 401k or traditional IRA account you put in the money. Tax-free. Just like you do your traditional 401k or traditional IRA, you take it off your taxes. So 7,200 took it off our taxes. It grows tax free forever. And then when we take it out, if you don't use it for a medical expense, you pay income taxes, same as your traditional 401k, traditional IRA.

So it's a way of getting around limits. Remember your IRA. You can only do 6,000, your 401k you're limited and employee contributions of 19,500. If you're able to save more than that. HSA tax deferred retirement account. And that's why I think this thing should be renamed,

Julie: [:Mike: [:Julie: [:Mike: [:Julie: [:Mike: [:

But you get to keep the one that you have. And again, my recommendation, if you can, is to keep it invested, keep it growing until, some time , down the road.

Julie: [:Mike: [:Julie: [:Mike: [:Julie: [:Mike: [:

, . So it is plan by plan. You've got to check your own plan. So we might have another podcast that goes over some of those details, but this one's really around using the HSA. So hopefully you have one and then this is my recommendation on absolute best way of using it.

And then this way, it also to your point, Julie, sometimes you have choices when you're at an employer and saying, I could go with this plan or this plan. If one of them comes with an HSA, you might want to consider that option. Now I always tell folks, families healthcare first, pick the health care fair

that makes sense for your family. That's what it is. It's healthcare. So make get the one that is going to be the best for you. But if you're agnostic between a couple of them, , you can go see the same doctors or whatever it is. . They have different plans like, Oh, your premiums and deductions are different.

And one of them has HSA. I would definitely recommend going that route

now qualify medical expense. I did want to mention this just briefly because to your question what if this grows so much, what am I going to spend this stuff on? And it's all the usual medical stuff, the copays and the surgeries and the doctor visits and all that. It's also all the prescriptions and that stuff, but it's a lot covers lots of other stuff too.

So you can use it for dental vision. chiropractic eye glasses and hearing aids. So it's wide range of things that it can cover. Again, I'm not going to go into all the details you can look up, maybe we'll have another podcast episode, or you can look these things up, but it's much wider than you would expect.

It's not just what your health covers cause your health care is not covering like the dental and the eyeglasses and stuff like that. But the HSA does.

Julie: [:

And everything in the store is HSA approved.

Mike: [:

It'll tell you, yeah. That you can use your HSA, debit card for this or whatever.

Julie: [:

you lose that. You use a ton of sunscreen.

Mike: [:Julie: [:Mike: [:

Elective cosmetic surgery, health club fees and dependent care. So I'm sure Julie run into this, but all the dependent care and the babysitting and nursery school and stuff is not a health savings. So just want to make sure to mention that. But otherwise, and then the only other thing, around the investments, we said, look, Investors for this, for the future.

Now on that note many HSAs will allow you to invest. So definitely take a look for that. Some of them make you keep some cash balances, 500 or a thousand, or even a couple of thousand as a cash balance. And then you can invest the rest beyond that. The investments are usually a good mix. Usually they have a lot of variety.

Some of them even allow just. Invest in sort of anything, the like at TD Ameritrade, it's an HSA and then you just go to TD and you can literally invest in kind of anything. So every plan is a little different for what you can invest in. And the only other thing I wanted to mention around investment strategy for an HSA, my recommendation is use it for the far future.

Save it and invest it and have a nice diversified portfolio set for that HSA. Individually, not as a part of your kind of overall retirement, but just for that, because I want that to be nice and well balanced to slowly grow over time nicely, but we're not going to be able to really rebalance it with respect to the rest of your 401k and other stuff.

So just have a nice little diversified portfolio in the HSA and every time make contributions just to rebalance it and let it ride

Julie: [:Mike: [:Julie: [:

All right. Julie's going to do some solo episodes. All about HSA is going to be fantastic. All right. Thanks Julie. Another good one and we'll catch you next time.

All right. See you later. Thanks.

Mike: [:

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