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Retire Happy Podcast: Episode #2 – Health Savings Account, Like An Extra ROTH IRA, But BETTER!

Jeremy
Jeremy

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Jeremy Finger with Riverbend Wealth Management talks about why the Healthcare Savings Account is one of the best places to save for retirement. Learn why the HSA account is triple tax beneficial.  Also learn how to make maximum use of your dollars that are in your HSA account.

Watch it on YouTube here »

“It is better to be generally right, than precisely wrong.” – John Maynard Keynes

Where is the best place to put money??

First order of priority is to make sure you have a cash cushion for emergency expenses.  You already have that, right??

Usually the second order of priority is a Health Savings Account.  What is that?

If you and your family are relatively healthy, you may choose to participate in a High Deductible Health Plan (think lower premiums to pay, but higher deductibles to be met before the insurance pays).  For 2021, your deductible needs to be more than $1,400/yr for individuals and $2,800 for families.

Part of the bonus of the High Deductible Health Plan (HDHP) is getting to participate in a Health Savings Account (HSA).  Why is that a bonus you might ask?

In Finger Financial Five fashion, let me share with you a story…

In golf, there are a number of people who hit the ball long.  There are some who hit the ball straight, but it doesn’t go much farther than their shadow.  There are some who can putt, but it takes a lifetime for them to make it to the green.  A rarity is someone who hits the ball long, straight, AND can putt.  Barry Roof can do that.  That is why he is a multiple winner of the Dunes Golf and Beach Club Championship.

The HSA is the Barry Roof of IRA’s.  It is a triple threat.

  • Contributions can be tax deductible, like a Traditional IRA

  • Investment grow tax free, like a Roth IRA

  • Qualified withdrawals are also tax free, like a Roth IRA

To qualify for an HSA, you must first have an HDHP and you must NOT be:

  • Covered by any other non-HSA qualified health plan, such as your spouse’s non-HSA qualified health insurance (think low deductible plan)

  • Covered by your own or anyone else’s flexible spending account

  • Enrolled in any part of Medicare or Tricare (this is why you cannot contribute to an HSA when you are over 65)

  • Receiving any Veterans benefits now or within past 90 days

  • Claimed as dependent on another person’s tax return

You can contribute to an HSA up until the tax filing deadline in Mid-April for the previous tax year.

There are limits on how much you can put in an HSA for 2021:

  • Individuals is $3,600

  • Families is $7,200

  • If over 55, you can add $1000 to the above numbers

You can contribute to an HSA though your employer, which not only saves you state and federal tax, but also employment related taxes such as FICA and FUTA.

If you are not employed, you can contribute after-tax money to your HSA.

If you pass away, your spouse can move the HSA funds into their own HSA account.  If a non-spouse inherits the funds, they will pay ordinary income tax on the account.

The money you put in an HSA is always yours and there is no vesting schedule for employer contributions.

Non-qualified withdrawals are subject to ordinary income tax and a 20% penalty prior to age 65.  After age 65, non-qualified withdrawals are not subject to the 20% penalty, but you have to pay the ordinary income tax.

You may, however, make withdrawals to pay qualified expenses.  So what are qualified expenses?

  • Medical

  • Dental

  • Vision

  • RX medicines

  • Some insurance premiums

You can pay these expenses directly from your HSA by using an HSA debit card or check.  DO NOT MAKE A QUALIFIED WITHDRAWAL BEFORE AGE 65.

Why?

You are allowed to pay old healthcare expenses with your HSA.  Therefore, it is a good strategy to pay your bills now with your after-tax money and let your Health Savings Account grow.  When you need the money for retirement, you can add up all of your old healthcare expenses for reimbursement through a QUALIFIED WITHDRAWAL FROM YOUR HSA!  This is like having an EXTRA ROTH IRA.  

Some custodians, like Fidelity, allow you to invest the money in a Health Savings Account in stocks, bonds, or mutual funds.

Investment and tax tip:  Coordinate the investments in your HSA with your other investments to meet your retirement needs.  Coordinate any withdrawals from your HSA with taking Social Security benefits and distributions from your pre-tax IRA accounts, and Roth accounts.  By properly coordinating your use of these accounts, you can generate powerful tax efficient retirement income.

If you have any questions, Simply click here to setup a phone appointment or send me an email at [email protected].

On the lighter side, this is number 52 of the Finger Financial Five.  Once a week for a year.  Crazy.  I grossly overestimate what I can do in a day and grossly UNDERestimate what I can do in a year.  Just like investing, activities and skills compound over time.  I don’t have to do a whole year — just today. This is why I urge people to just take the next step. You don’t have to do it all. Just run to the mailbox

I have a Half-Ironman this weekend in Wilmington, NC this weekend.  My back is a little tender, so I’m not sure if I’m going.  Goal is to be healthy first, have fun second, and finish the race third.  If I feel good, I’ll go.

Hope all is well with you and your family,

Jeremy

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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