How to use your HSA as a Retirement Account

00:00 Mike: welcome to financial planning for entrepreneurs and tech professionals. I'm your host, Mike Morton certified financial planner. And with me today, I've got Julie back in The store. 


00:12 Julie: Hello. studio 


00:14 Mike: love how I said studio 


Yeah. Yeah. We're actually just both at 


00:18 Julie: slash my daughter's 
bedroom. 


00:20 Mike: plus it's not actually a studio is my daughter's bedroom. 


00:22 Julie: Yep. 


00:23 Mike: but you're looking good, Julie. 


00:24 Julie: You as well, especially after a 22 miles yesterday. 


00:28 Mike: I don't remind me, my hip is still hurting. Julie and I are both training. We're all, we're always training for something, one thing or another, but marathon is coming up soon. Cape Cod marathon and Yeah. 22. Oh, I didn't do 22 miles yesterday. I bailed. Julie did 22 miles yesterday. I bailed at 16. I was like, I'm done. 


00:46 Julie: That's only because you forgot that you had just run 22 miles, four days prior. How you forget that? I don't know, but. 


00:55 Mike: put that out of my mind also, but we had a good time yesterday. And one of the things that we brought up that we want to talk about today, our favorite account type, what's our favorite accounts. I've Julie. HSA health savings accounts, the HSA, the only account with triple tax benefits. 


01:13 Julie: Also known as my favorite. 


01:15 Mike: Also known as Julie's favorite. 


account, the best account ever. So today, Julie, what I thought we did, we talked about some of the pros and cons and benefits and things of HSA is, and actually I'm going to have a mini series probably in the next few months or so really diving into each aspect of HSA, doing a masterclass, a deep dive into HSA is what exactly you can pay for how exactly to use them, how it fits in taxes, like all those kinds of things. 


But today what I really want to do with. Talk about how you use the HSA, like how you actually get in there, what you're actually doing as both tech professionals and entrepreneurs within your family how you guys are using the health savings account. 


01:53 Julie: When you first explained it to us, let me back up. When Dave, my husband first brought it up to me that it was offered through his work. He said, what do you think about this? I said, oh, that sounds like something I won't use too complicated, and he said let's talk to Mike about it. 


And so we talked to you and then you explained that A little bit of work on our end now we could essentially save quite a bit of money every year. I think, what is it about 7,500 or 9,000? I forget what the cap is on that, but all that money is tax-free, it grows tax free and then we can use it in retirement tax rate. 


And there's two ways we can use it in retirement, which. Either we use it to cover health expenses, which there's no penalty for, or if we're really good with our record keeping, now we just pay ourselves back for all the stuff that we've paid for out of pocket now. And so that's where. Planning for both. 


And it has taken a while to get a system down because , you want to make sure that you are tracking it properly and that you have the right documentation as you've pointed out to us. If you ever get audited you don't want to lose the benefit of the triple tax by , getting hit with a penalty. 


03:05 Mike: Yeah, no, that's awesome. Explanation. Why are these, why are we telling you this today? Because it sees you thousands and thousands of dollars. All right. So that's why it's important. And Julie just walked through, the overview put money in, invest it, let it grow. And then use it in the future. 


Like any other sort of long-term savings investment account, but this one has that triple tax benefit. So that's what I wanted to walk through how we're actually using this today as a real world. So one exact. Of how you can take advantage of that. So let's start at the beginning. Julie was setting it up. 


You mentioned about that , oh, we finally have access via, our high deductible health plan. This thing called HSA sorta came up. 


Let's start with the opening, the account. How did that work? Choosing what type of plan high deductible health plan, that comes with an HSA. So you'd mentioned, you didn't have that option previously, but then you 


03:51 Julie: Yeah, it became a new park. From what I understand it is. For a company to offer benefits to employees while reducing expenses on their end or reducing taxes or something. And so , they gave us a fairly high deductible health plan, but then offered us this HSA in return, which at the time I thought was not a perk at all. 


And then once I learned what the account was I realized it's actually quite an amazing perk. And I believe , it was set up through my husband's HR department and then the money comes out of his it's an auto draft and it comes out of his paycheck pre-tax and goes right into the health savings account. 


I honestly don't even know what company it's with. 


04:35 Mike: But so the high deductible, so you ha you were on one type of health insurance, for your family. And then during an open enrollment or, I know Dave is working for small business, so they decided, oh, we're going to have some different options available healthcare plan options, but usually for employees. 


During open enrollment, you have a choice like, Hey, do you want to stick with your current plan or choose one of these other ones? So you'll see in their high deductible health plan plus HSA, they will definitely, typically highlight, Hey, this is a benefit. There's an HSA. And if you don't know what that is, it's worth diving into. 


And it's someone we're talking to the benefits today. Okay. But when you see that, understand that the, and ask questions about the HSA. But it does come with a high deductible health plan. Now, the money going in. Some of it comes from the employer. And some of it. 


might be coming from the employees. 


That's always an important question to ask for your plan. First. I always say this with health insurance. This is a health insurance. Make sure it's the right insurance for your. This is insurance first, when you're choosing between a B and C options, make sure it's covers the doctors you want for what you need for your family. 


It's health insurance first, But if they're all equal the HSA, it can be really great. . So the money goes in there either from the employer you said through the the paycheck's going in now, 


05:49 Julie: But they also 


give 


us an amount that covers the deductible, but the, my husband's company. So that also. Auto transferred into the HSA account. So it's a high deductible 


06:01 Mike: they're covering. Yay. So they're cover the premiums. So your company, his company is covering the premiums for the health insurance, and then you have this new account that's opened up a health savings account. It's got the, a there at the end. So it's an account and money is put into that account per pay period. 


Some of that might come from the employer. So you, weren't going to get that as a, part of your pay anyway, but some of it , does he say all I'm gonna put in a hundred dollars of my own. 


Every month or anything like 


06:32 Julie: out. We make sure that we hit the limit of the HSA. 


06:36 Mike: Okay. Do you know if it's coming, comes from like his employer, putting it in a bunch of that or out of his own pay that would've just been his take 


06:43 Julie: I want to say our deductible is somewhere around $4,000 or something like that. And his company puts that amount into the HSA and then we contribute the rest to max it out. 


06:56 Mike: Okay. And do you contribute that via just the paycheck? So you just spread it out through the 12 months. Okay. 


07:02 Julie: or he might do it all at the, I'm not sure he might even throw it all in at the beginning of the year. I'm not quite certain how that end of it works. The end that I track is keeping up with all of our family's expenses. And it's important because I said, we, we can use it in retirement two different ways, but also we view it as an emergency. 


Place as well. That's growing at, you know, the tax rate is there is no tax on it. And so as long as you have a meticulous records, you can pull that money out so long as you have receipts to show that you have spent that money on medical expenses. 


07:39 Mike: Yeah. Yeah. So let's talk about I definitely want to put a pin in that for one second, but just the money going in, let's round that out. So the employee, the deductible, your employers decided they can decide how much ever much they want to put in. So Dave's company has decided, Hey, we'll put in 4,000. 


That's what the deductible is. That's what we'll do. The family limit for this year and last year at 7,200. So you're putting in that other 3,200, you can just do it from your paycheck. Okay. Maybe it's going to that way. You can also put it in after for the whole next quarter of next year, you can look back. 


So when we get to January of 20, 22, You could look back at your HSA and if it wasn't topped up during the calendar year from your paycheck, you can go ahead and top that up all the way until tax filing. Okay. So that's how the money goes in part employer may be part of your own, and then you have this, it's a new account, right? When you set it up, that they send you, what is a jewelry that you had, like login details. Where was this being 


08:33 Julie: It's a third party account manager. I think ours is called. HRC. And , they give us a portal to log into that gives a link to the HSA store or the FSA store which I believe is anybody can use that as long as they have an FSA. And the neat thing about it is , everything in that store is eligible under the FSA. 


So anything you buy on there, things like Lotions sunscreen. You'd be surprised as quite a bit that actually can be filed under the, ibuprofen. All of that can be considered as an out-of-pocket expense for an FSA or an HSA. And so we have two different ways of tracking ours. 


I don't know if you are, if you're ready for me to move on to this part yet, . 


09:15 Mike: Yeah. Yeah. Want to talk about, so you got the account and then there's the portal. Okay. 


cool. So you've got just like any sort of checking or savings account you've got online access. You can see how much money's in there. And then as part of it, there's the store too, because they're telling you like, Hey, here's all the things that you could just spend it on. 


All right. Okay, cool. And so you can go ahead and use it for those things. 


09:34 Julie: Yes. And so we also, have a debit card or a student's a debit card associated with the account. So if we were to go to the doctor's office, we could use that card to pay for the appointment, the copay we could use it at. BJ's will they'll even tell you what the FSA products. You can scan your card first. 


It will automatically deduct the FSA or HSA eligible items from that card. And then you continue on with your transaction. CVS will do the same thing. I'm assuming probably all the major retailers that carry a lot of FSA HSA goods do. So it's become a lot easier. And like I said, the portal has the link to the store where you can buy direct. 


10:13 Mike: Right. 


10:13 Julie: but it is it is a bit of a tracking 


10:17 Mike: 


Let's talk about that for a sec. Is that the way, but that's not the way that you're really using the account, right? So you're not just putting in money in there and swiping for the stuff and kind of spending the money. How are you using 


10:28 Julie: I'm using it as a savings account as a way to build a triple tax benefit essentially for our savings. And. We intend to use it, like I said in retirement. But it's also, in my opinion, in an emergency cash stash that if something were to come up we have access to it because we have all our receipts and. 


10:49 Mike: okay. All right. Let's talk about that, how that works, how you're thinking. Using, this is for the future, so we can invest this money. So I want to get into that a little bit too. Like you can invest it for that 10, 20, 30 years down the road. But you've mentioned the emergency savings a couple of times. 


So walk me through, how does that work? That you can tap this money for, if you had an emergency, that's not a medical emergency financial emergency, how would you pull out a couple thousand dollars? 


11:14 Julie: Right now. If we, like I said, we could use the FSA card to pay for the copay, instead of doing that, I swipe my regular credit card and I've paid for it. Now, if I hadn't have had that FSA or HSA debit card, the way you would have done it was you'd pay your own way. And then you'd submit a receipt to the third-party company. 


They would reimburse. So I pay for all of these things with my own money, but I'm not asking for reimbursement yet. I'm leaving it in there. So that should a time arise. When I find myself needing extra money, such as in an emergency, I can then submit to the company, Hey, I would like to be reimbursed $15,000 for my medical expenses that I have paid out of pocket the last three years, because I need that money. 


12:05 Mike: okay. So you're saying you can save the receipts for HSA qualified expenses. And at any time you can be reimbursed for those 


12:17 Julie: Correct, including a year from now 10 years from now, 30 years from now, which is why I love it. 


12:27 Mike: Which is why we love it. Okay. So you're saying, oh my gosh. So you're saving the receipts for kind of all these different expenses when you're just paying them out of pocket, your own credit card paying for them and then saving that receipt. So how do you save, how do you save in those, all those. 


12:40 Julie: There's the question of the hour. So, At first I was only using. FSA money, HSA money for or saving receipts for things like co-payments. Which gets pretty pricey, right? A trip to an ER, with a kid who has broken a wrist cost you 500 or a thousand dollars. Like you, it comes up pretty quickly. 


And so those are fairly easy to track, right? You get, you have your co-pay receipts, you ask her a medical receipt upon service, and then you'll usually get a bill in the mail for whatever your portion of the deductible. And you'll pay that. So those receipts I keep and you need to make sure that you keep the invoice that has the treatment date. 


That's really important. You have to have the date of treatment because they have to categorize it by year, make sure that you're not going above how much money you have in the account per year. And then you also need the receipt of how much you actually paid. So as long as you have those two things then you are square. 


So I ha I created a spreadsheet and it just has date of service or, date of treatment. The amount that we paid, the organization that it was paid to who the patient was. Was it me? Was it my husband, one of the three kids is the receipt and file? Yes or no, if it's. We'll at some point have to go back and contact that organization and ask for a receipt that was earlier on when we first started tracking. 


And then any notes that we might have, so it's all on a spreadsheet to keep it manageable. And then I have a file of all the paperwork and I just keep them in date order. My husband, however, on the flip side, so I have not been doing things like. out a grocery bill or a target run to account for. 


Some of the FSA eligible items. That's a little much, but we will sometimes make one big trip. Okay. We know we're going to need sunscreen for the year. So at the beginning of the summer, we'll go and we'll buy. A big old VAT, a sunscreen and on those trips, we keep the receipts for the individual items because they do add up, quite quickly. 


So if you find yourself buying a lot of children's Tylenol and children's ibuprofen, you'd be surprised how quickly you get up to the hundreds of dollars in that product category. So just look and I wouldn't recommend tracking every single thing. I think, $5 here, $10 here that's not worth it, but if you're going to stock up on certain things, make one big HSA run a $500 run, to stock up your medicine cabinet. 


Especially if you. As everyone should be going through and throwing away all the expired stuff and, restocking, whatever is no longer of use. But bandages and, my son broke his wrist this year and he fell in poison Ivy. So he ended up with six different casts. So you can imagine the copay bill. 


15:35 Mike: Wait, six, six different 


15:37 Julie: to take his cast off once a week and do a skin check because he had this horrible poison Ivy under it. And, the poor kid, but also poor me because the bill came in and was like okay, this is another $2,000 I can save for this year. You know that I can be reimbursed if I need it. 


15:54 Mike: Put in the happy spin on 


15:56 Julie: definitely because it's an HSA and I love the account. So I'm like, yay, Charlie. 


15:59 Mike: So you mentioned a couple of things in there. Obviously keeping track and adding them up, but you also mentioned Oh, gosh, what was it around? Oh, having the money Available in the HSA kind of keeping track of that. But Julie, , I believe the rule is as long as the HSA is open, you can actually have higher bills than what is currently in the account. 


So in other words, if you just open an HSA this year, you just got the high deductible plan and you just started contributing and there's $500 in there right now. In 2021. And then Charlie, breaks his wrist and, oh my goodness, we've got thousands of dollars of bills. I want to save them. 


You can save those thousands of dollars as long as the HSA is actually just open as long as you have the HSA as of the date of service. So that's a really good point. to know, like you can just start adding, saving all of those receipts, even if you don't have the money available to, to be able to use the HSA. 


Yeah. , and you also mentioned keeping the receipts in a folder, which is great saving the receipts. Are you doing any kind of digital saving of them because often I'll recommend that 


17:01 Julie: So that was actually a question I had for you is now I've got this big, old thing of paper and I'm thinking to myself, I'm putting this money away for possibly 30 years. God forbid there was a fire. I don't, I do I buy a fire safe for this packet of paperwork? Or is there a quick way to scan these all in at once? 


Or is this going to be like, okay, devote a day to get these documents somewhere and where do I put them in the cloud? Where do they go? 


17:27 Mike: Yeah. Yeah. My recommendations usually around, digitally saving things. Cause we all know everything's going in that direction. And so saving them somehow digitally taking photos is super easy way of doing it. So just using your phone and put them down and just like snap photos. And if you've got a whole bond. 


You could snap multiple ones at the same time. I You're just keeping a record of, this was the actual receipt. I like storing the paper copies as well, but to your point, Hey, what if something happens? So go ahead and store those digitally and make backups of them just like you would your photos and other things, your tax documents, making sure you've got a couple of copies or backup copies. 


And this is like you said, in case you're audited. So this is just you file. When you go and file your taxes, you'll put in, if you drew some money out of the HSA and what you used it for, and just as part of your tax returns and tax phrase, you're just taking it straight off the top of your income. 


Anything that you're using this for. And then it's just that the IRS decides to audit you, that you need a paper trail for oh yeah. Here's why I was allowed to do this. 


18:27 Julie: I like the the spreadsheet method, because it also gives us. Glance at how much money we have, cause it's over the course of multiple years, right? So in any given year, you can see how much money is in your HSA, but it's nice to know what your reimbursable amount is at a quick glance, which is just a simple calculation. 


You throw in the spreadsheet. 


18:44 Mike: And I love the emergency savings. It's so great. It's a way of having emergency savings. And the way I was talking about emergency savings, if you listen to podcasts, is it's something you hope to never have to use. So there's a very small percent chance of having to use this emergency money. 


This is not things we know we're going to be spending like a new roof or appliances or things like that. Those things are gonna happen so budget for them, but this is like a truly financial emergency, a loss of a job that's unexpected, or a family tragedy, or supporting a friend where you gotta go do something. 


So it's a financial emergency. Very small likelihood. And so once you reach a certain level of assets and comfort, you can have that invested in the market and understand, Hey, if I need this, I do have access to it. But since there's such a small likelihood, we can go ahead and earmark that for the 10, 20, 30 year future. 


And hopefully that's what it will end up using. And the HSA of course is a perfect example because it's growing tax-free and it will be tax-free forever. So you can actually store emergency savings inside an HSA. It's 


19:48 Julie: I know my favorite. 


19:51 Mike: All right. So we've talked about investing. So Julie, how does that work? When you've got a few thousand dollars in there now within that account, how does that money get invested and what are we investing in? 


20:02 Julie: That would be a really good question for my financial advisor. Hey Mike, 


are we doing with that money in that HSA account? 


20:13 Mike: So typically, it's an account, Right. That's the a part. And so you have this portal, you log in and you say, oh, this is amazing. I have $4,000 in here. The company has put some stuff in, or it's getting deducted from your paycheck. So normally that's just sitting there in cash. 


And the majority of HSA is just sitting there in cash. And, Julie, how much return you're getting on your cash. Have it under the mattress. So you might want to invest that, especially if it's for the only, sorry, I should say only if it's for the future, if you're going to spend that next year. 


Yeah. Just keep it in cash. But if you're going to have it, invested for the long-term future, then you can do that. You can put it into the public stock market. Now, many of these HSA is you log in the account and there'll be options there to. So there are all different, the different portals look a little bit different. 


Some of them required you to keep some in cash, $500 or a thousand, or even $2,000 in cash, because that's how they make some money as Well, And they're deducting fees for doing their work that they do, but the rest you can transfer or invest sometimes there's limited options. Sometimes there's sort of anything you want to invest in. 


But I was recommend, using just like your regular 401ks or IRAs, your portfolio low-cost index fund. Across a few different funds again, depending on your timeframe, but massively diversified low cost and keep it simple. Yeah. 


21:26 Julie: Cool. 


21:26 Mike: And the 


21:27 Julie: you did that for us. 


21:27 Mike: yeah hopefully we've done that. 


I'll put a your mark that for maybe later today. Oh, we've definitely done that. And the other thing to keep an keep track there is. Sometimes the, like we talked about the investments come every month. The the contributions to the account will roll in every month. Sometimes you do it once a year. 


Like I was saying, oh, you can do it. And then the first quarter of the following year, so some people will go ahead and dump $3,000, or whatever to top it off. And those are the times that you want to also get in there and check the investments, check the portfolio when you're dumping those contributions in or where it gets to a level that you can go ahead and invest. 


22:03 Julie: Cool. 


22:04 Mike: Now , we've talked a lot there. Is there anything else that we haven't discussed in terms of how your utilizing logging in or utilizing or the HSA, anything else that is part of your process? 


22:16 Julie: I don't think so. I will say that we do have two separate spreadsheets because. I track all of mine and the kids' expenses because that's the part of the household I run. Whereas my husband tracks his own stuff. And that's just to keep it simpler for me really. I guess the point in mentioning it is that you can do it many different ways, whatever works for you and how you want to track it so long. 


You have access, easy access to the information. So you're not scrambling. Should you need it? Because if for instance it's an emergency, you don't want to be trying to track down files and receipts and such. And then even in retirement is that what you want to spend your retirement doing? 


Going through a stack of, receipts from 20 years ago? Probably not. Whatever you can do to make it simple and sustainable for your family. 


23:04 Mike: Yup. No, that's a really good point. Yeah. exactly. Keep it. I love it. Simple and sustainable. Perfect. All right, Julie. Thanks so much for walking us through how we're actually using the HSA. We've talked a lot about it, but it's nice to hear about the nuts and bolts and how you're actually getting in there and doing things to get that real world example of why it's so 


23:25 Julie: Yeah. I feel like an HSA, like salesperson. I can't believe how many people I've told about it. I'm like, what do you mean you're not using an HSA 


23:32 Mike: Yeah. Yeah. Awesome. Next up for I'll get you really excited about Roth IRAs for kids. That has been another topic which Is a lot of fun. So maybe we'll have a whole episode on how we're going to be utilizing that for the kids and be another one to get you super 


23:45 Julie: it like college savings or bail savings depending on the kid? 


23:51 Mike: It's setting up your kids for success in the future which we all love to do right. For our kids and in a tax-free way. 


24:00 Julie: Spectacular. 


24:01 Mike: All right. Thanks so much, Julie. Super appreciate it. As 


24:04 Julie: Thank you. Great time. 


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