I often recommend using your Health Savings Account (HSA) as another retirement account with tax benefits. This is different than the way most people approach the HSA because it starts with the word “Health” and you can pay for medical expenses. But you can invest the money for the far future allowing it to grow and compound tax-free. The best part is that you can even pay yourself back for medical expenses that you are incurring now!

Listen as Julie and I discuss how to actually use this account including:

  • How to choose the right health plan for you
  • Who contributes money to your HSA and when
  • How to pay for current medical expenses and what to track
  • How to invest your HSA for the future
  • How the HSA can be used as an emergency fund!

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

Transcript
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Yeah. Yeah. We're actually just both at 


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account, the best account ever. So today, Julia, 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. 


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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. 


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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 


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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. 


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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, 


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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 


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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 


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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. 


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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 


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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, . 


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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. 


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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. 


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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 


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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? 


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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. 


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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. 


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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 


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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? 


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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. 


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You throw in the spreadsheet. 


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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 


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are we doing with that money in that HSA account? 


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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. 


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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. 


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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. 


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Thanks for joining us on financial planning for entrepreneurs. If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts. You can connect with me on linkedin or mortonfinancialadvice.com. I'd love to get your feedback. If you have a comment or question, please email me at . Until next time thanks for tuning in

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