What the Tech is an HSA?

Do you know all of the amazing benefits and flexibility of an HSA (Health Savings Account)?

The best features are that they are triple tax-free:

• Tax-Reduction on contributions
• Tax-Free growth
• Tax-Free withdrawals

That's not all. There could be real savings just by comparing a high deductible health plan to a pricier option.

In this episode, I tackle a framework I use to help clients make an informed decision on whether they should use an HSA.

Transcript

Lucas Casarez 0:00

So, If there was only one side I had to share as to why and how awesome HSA is, as amazing as it is, is the triple tax-free benefit. Hey everyone. Thanks for joining me today. I'm excited to be back. I took a kind of short kind of long paternity leave. So I took some time off before we had our daughter a few weeks after we had our daughter. She's doing awesome. She's been home now with us for a few weeks and so super excited that she's home. And finally, a part of our family we've been going on. Family walks with all four children. And I think our neighbors look at us and think that we're a little bit crazy. But I'm excited to be back today talking about what the tech is in HSE. So HSEs are really fantastic, really flexible, flexible, and versatile. Type of an account that I think a lot of people don't understand. So with open enrollment right around the corner, usually that's November time period. For most of my clients. It's a big question that comes up is like, which, which helps. Insurance, should I choose? And if you choose a high deductible health plan that comes with an HSA option. And again, because of all the benefits and they're a little bit more complicated, I want to make sure we tackle this answer. Any of those questions that you have, and really give you a clear understanding of what does this help you, or is it worth more of a consideration than maybe you may have given it in the past, or maybe you've been using HSA and you're not quite sure why it's been working or how it's been working for you. And so we'll dig into those details. And so here's just disclosures. I have to share all the time. And at the same time, this is a live recording of my podcast that I'm bringing back. And so we, I'm going to play a quick little disclosure from my friend, friend of the show, Orlando Gomez. His interview was earlier in the season. So if you want to hear more about his story of how he broke into tech, by writing a jingle, definitely check that out. But here's his quick disclosure for you guys to listen to it. This information is for education. So don't just go use it first consult with your financial advisor, because that's way more legit. That's it awesome. That is it. So we can move on from the disclosures, but basically what this says. Yup. Informational purposes only. So definitely, I don't know all of your specific situation, my clients I received to you. So if you're a client watching this or listening to this podcast, I definitely reach out because I will know your exact situation. Be able to help you a lot more. One of the things that makes not only just the agency question, just such a big question, mark, and like what the heck is going on here is just health insurance in general, super complicated, probably way more complicated than it should be. And so if, if this is any constellation where we're going to shore up some of the questions and some of the confusion that. And this part of your options when it comes to your open enrollment, that makes my day, and hopefully it makes your life a little bit less stressful and easier as you're navigate and these decisions. And the big question is, well, should you use an HSA a lot of times in HSA in a high deductible health plan, these things are paired together. That is usually a part of your open enrollment. There's usually a high deductible health plan with an HSA plus one other type of health insurance option. Sometimes you might have a more robust list. I've seen things as many as like six or seven different options, which you think are helpful, but at the end of the day, it just makes things more confusing sometimes for people to go ahead and choose. Well, it doesn't HSA make sense for you. Does it make sense for you to look into a little bit more in detail than we'll cover today? If, if I wanted to, I could probably easily talk for 45 minutes or an hour on this, but I'm really want to condense it to you. The key information you need to do that last little bit of research on yourself and lock this in, but I'm aiming to have this be less than 15 minutes of covering information, give, give, or take, depending on the Q and a. So what the heck is an HSA? Exactly. That is short for a health savings account. And again, these are just crazy accounts, special tax benefits. Best tech stream of any type of account out there in the United States, at least in it's pretty ridiculous. Gil is it provides a ton of flexibility and a ton of benefit too, depending on what's going on in your life. If you're able to benefit from this and not have a ton of medical expenses, there's a lot of cool things that you can do with an HSA. You might not have ever thought of. So we'll, we'll cover all those cool and, and things that I find exciting as far as strategizing and maximizing your returns and minimizing your taxes. You are only able to use an HSA account if you are enrolled in a qualified high deductible health plan. So that's important piece. You can't pick up a health insurance that is not a high deductible health plan. That's qualified for an HSA. And then still try to turn on an HSA. A I'm sure you can do those things on your own, but when it comes tax season, then there's going to be all sorts of issues and all sorts of audit problems. If you run into that, so make sure your. Enrolled in a qualified high deductible health plan, if you're going to utilize in the HSA and so super, super important on that. I've seen people try to get the benefits of the HSA without actually having a high deductible health plan that Iris does not like that. So, If there was only one side I had to share as to why and how awesome HSA is, as amazing as it is, is the triple tax-free benefit. So you get a tax reduction going in. So any of the funds that you put into an HSA account that reduces your textbook income. So that's, that's awesome. Right? And then as it's in the account, it can grow tax-free and there's a couple of different ways you can approach it. It might not stick in the count too long. It truly is for medical expenses. And you still have a high level of medical expenses coming up that you just need to take it back out. If so the tax-free growth might not be as beneficial. But I do have clients in, and you've may be in this situation as well, where you have a robust emergency savings surplus of cashflow, maxing out all of your retirement accounts and just really just have plenty of funds where you don't actually need to take the money out. Even if you do have medical expenses. I'll talk about that benefit a little bit later, but yeah, if you don't have a ton of medical expenses, you can let these things grow tax-free you can invest in. In the traditional way that you would with like a 401k or an IRA account. So investing in the stock market allow it to grow all that growth will be taken. The withdrawals will also be tax-free too. So it depends on the situation and kind of what you're making those withdrawals for, but that's, that's that final third triple tax free portion of it is not only will it go in tax-free road tax where you had to withdraw a tax rate and that's, if you have eligible qualified medical expenses. So this is another thing that kind of catches a lot of people by surprise, and they don't realize that. There are the obvious health expenses that a lot of people like, oh yeah, I want you to doctors. What's the hospital. I went to, ER, like, clearly that should be an eligible medical expense, but then there's other things too that maybe you didn't necessarily know, like if you had to get dental work time, well, your HSA funds can be withdrawn and used towards those purposes. Same thing for vision. And then a few other ones that I've had clients ask me when we're, we're looking about, well, what can we do. Come tax season to fund an HSA, but because cashflow is a little bit tight, take the funds right back out. So get the immediate tax benefit, take the funds back out and use it towards something. They were going to have an expense for anyways. And so acupuncture has been on there as was a chiropractor for medical purposes. So if you talk with your chiropractor, there's ways for them to categorize these things, to make sure that it's jives well, when you are filing your tax returns. Yes, I did have qualified medical expenses. So these were draws are going to be tax-free for me. So there's a whole list too. So what I do typically when I get a question and I'm not sure if it's a qualified medical expense, I just do a Google search and there's like three or four different websites that have. A laundry list categorized like a through Z of all the different things that you can buy from the store purchase that like CVS Walgreens, as well as the other types of services, like the acupuncture and chiropractor. So if you have a question, not sure if it's qualified and it might be kind of undecided. Just do a Google search, find these great websites and find out whether or not that qualifies. And it's a good, good excuse for you to put funds into HSA, knowing that you're going to get the tax benefit and you can pull it right back out. It doesn't have to be a cashflow issue. So, unfortunately this isn't unlimited, right? The triple tax free, the IRS, isn't going to just let you drop however much money you want into it and allow it to grow tax free. There's going to be annual contribution limits. And as a 2021, if you're having an individual health plan, it's 3,650. If you have a family covering with your health plan, that needs to be 7,300. So I'm not a huge amount on an annual basis, but if you continue to have those eligible health insurance with the high deductible health plan and you're eligible for the HSA contributions. And then you're able to start invest in this. These things can truly add up over time. And just a quick example of what the tax benefits would look like. This is someone that's fallen in the 24% tax bracket. So if you're watching or listening to this, and you're not quite in the 24% bracket, maybe you're in the 10% or 12 point. These tax benefits are not going to be as robust as the one that we're looking at, but then you could be in the upper range, maybe in 32 those higher tax brackets that always seem to be changing over these last few. And possibly changed in here in the near future, but these might not be as robust as if you are in those higher tax brackets. There's also one small thing I'll cover at the end, which provides additional tax savings to certain people. So I'll share that with you too, but yeah. Tax savings of$876. If you max out the contribution as an individual and you land in that 24% tax bracket, if you make that maximum family contribution of 7,300, Well, then the text benefit at that 24% tax bracket is 1007 52. So if you think about it, not, not a huge number is not gonna change your life or anything like that, but that's free money that you get back or, or that you don't end up paying in to Texas. So it's a true tax savings to you, then the crazy part tap. And when it starts to grow texts, And then once you're able to actually use it and leverage that and use it for your life or medical expenses, whatever those come up to you when you take them out. So that's great. And all those are all the benefits, but how do we know for sure how your health insurance. That it's going to qualify for an HSA is going to allow, is it going to really be the best thing for you? And there's really the three main things that are easy to take a look at and looking at those could tell us, well, do we need to dive in deeper? Is your situation a little bit more complex? And so what that looks like is the guaranteed. A lot of times, people don't realize that you're guaranteeing yourself, that you're going to pay a whole bunch more by choosing a different insurance options. So one, that's not a high deductible health plan. One that doesn't allow you to have the HSA and the reason why people do this. And sometimes it's an error. Maybe they shouldn't do it is because they're scared of the unknown's with the high deductible health plans. Because a lot of times there might be. It depends on how their insurance is shaped up by your employer and that coverage is provided, but there might be a question mark as well. How much do I pay if I go to the emergency room or how much do I have to pay? If I have to go to the hospital and for that, there's not a quick and easy number. You'd have to call in, figure out what those things are with some of the other. Non high-deductible health plans. It's kind of locked in there's copays, things like that, where it's like, oh, this is all you pay. And people like, like, oh, that's a known, I, I know for sure what that is. But the problem is from a guaranteed cost standpoint, it there's sometimes such a huge gap. There could be a$4,000 gap between the high deductible health plan and this other one that you're locking in and guaranteeing that you're gonna pay 4,000 more. And that's where really where there's a lot of flexibility. If you don't have anything major come up or maybe it's just small stuff, you could just save outright. Even before we talk about the tech savings,$2,003,000, just by going with a high deductible health plan in all these health insurance plans are set up separately. Also worst case scenario. So the easy way to look at that is look at the max out-of-pocket. So this is like, Hey, what if I have$150,000 medical bill? What's the worst that can happen in any of these things. And typically you just look at that max out of pocket, and that is what it is. You'll definitely want to make sure you're aware of. What's the max out of pocket. If I'm in network versus out of network, or if I'm out of the country, if you travel what these, these things could change some of the variables for you, but a lot of times it's like, Nope, I'm, I'm, US-based usually around the house, around the, my state. So it should be a network. I don't see why it wouldn't be. I then don't look at just kind of a high usage case. So there's the best case, worst case event. What's, what's kinda middle of the road. And so you could throw out a number. What if I had$10,000 in medical expenses? So how you calculate that is then you, you know, they can be used in the deductibles on some of those things, then look at the co-insurance, which is how much you. Versus how much that insurance starts paying. And again, if you haven't an advanced situation where it's like, ah, I have these medical things, medical things I have to get. People have to see prescriptions. I need to have felt, then you don't want to just look at these three easy to calculate scenarios. You really want you to run some numbers. You really want it to start calling in and finding out what what's the, how much would this medication cost here versus if I was on this other coverage. And the thing is those things change every year. So just because. You maybe have been good on your insurance coverage for your medication, these things flip around. And sometimes we get notifications that, oh, our doctor might not be on our planet anymore. When the next open enrollment rules around, even though we don't change the plan and then we kind of have to freak out, call in and make sure that nothing's really changed because it easily cut in. And it's hard to know unless you kind of look into all these things every single time. So if you know that you have known. Coming up. For us, we knew that we were going to have a baby this year. So we made our arrangements, made sure that the health insurance we chose was going to be the best fit. But those, those two things, there's three easy ways of then if your situation is more complex, you're gonna run. So the last things I'm going to tackle here, just a couple of tips and tricks that, that may work for you that may kind of apply to your situation, that a lot of people are not aware of. So when you actually make contributions directly from your. You may save additional taxes. So not just the tax bracket you're in, but you might save on Payne, Medicare and social security, Texas. This only applies if your income is below. I don't have the specific number for this year, but it's about like 140,000. So social security gets capped at a certain amount of income. And once you go above the income, you're not paying the social security taxes anyway. So if were.$200,000 and you're wanting to use HSA. You're not going to benefit from the 7.65% savings, but if you're making a hundred thousand dollars or less, or$130,000 or less, and you make an HSA contributions, you're saving a tax bracket. Plus you're saving the social security and Medicare taxes by putting it directly into the HSA before social security, Medicare, or no about the income. And it's perfectly safe. It's the IRS knows that people do this and that's how things are set up with your employer. Another thing is you can actually use the health savings account as a retirement asset. And the reason why we might want to do that is because of that tax-free growth and the F tax-free withdrawals. So if you save your receipts and say, Hey, I have all these expenses for the next 20 years before you retire and you save these receipts in a nice secure. You can actually refund yourself back in the future. So 20 years from now, I save up these receipts and then reimburse yourself in the future for all of these expenses you've had over that time. And what you can do is use that to supplement your retirement income because social security gets texts. If your income tax. There is health insurance that, that is more costly if you're reporting more income. And so with an HSA, as the funds come out and SAC report is taxable income. And so you can really navigate in and use this tax-free growth. Tax-free withdrawal to supplement your retirement and also just kind of supercharge it by. At navigating around any type of tech situations health insurance situations, you put yourself in the best position. So the pretty, pretty crazy, more advanced. So definitely this would be thing, something to look into a lot deeper than just this conversation, but that's what I do with some of my clients that have that. Hi, emergency savings amount already. They were already maxing out everything and they just have so much money that we don't need to take from the health savings account just because they have medical expenses come up. They're able to cover that with their normal paycheck and things and allow this grow tax free so we can really, really take advantage of it in the future. And then another thing. So let's say an opposite situation. Still got a lot of. Buckets, we're trying to do, we're trying to pay off student loans, pay off debt, paid mortgage, not yet. Mix now retirement accounts in. You don't have the cashflow necessarily to just throw money in all, out to grow tax-free and wait forever for it before you take it back out. That's when you know that things come up or that things that have happened. If you keep these receipts, you can contribute into your HSA. You have all the way to the filing deadline of the following year. So for 2021, it's going to be an April, 2022 that we can put funds in receive the tax benefit for 2020. And pull it right back out if we've had medical expenses at that point, or we know in my situation with the birth of my child coming up, like we put the funds in for Texas and we know we have a few months, we're going to have all these expenses. We can pull that out every one or two. And so really there's no cashflow issues. It might be a day or two before the funds are available for me to pull right back out and reimburse myself. But then we're able to get the tech savings for the. I then be able to return the, the cash return the savings and be able to use that for a normal kind of wife. So that's a really advanced thing, too, that a lot of people aren't aware of, even text brokers, don't really help people understand that there's that unique benefit. And last minute text Reggie, where you can kind of boost your tech savvy. But not really be out the money. Cause you can take a right back as long as you have those eligible medical expenses, which I mentioned earlier kind of range, a wide variety of things. There's a lot of things you can tie into that. So I definitely appreciate anyone who was able to listen to this today. Things have been a little funky and just having lots of kids around the house and at different stages of doing things and trying to enjoy that as well as doing my normal work that I needed to get done, but I, I will be cranking out more podcasts here prior to the end of the year. And then we'll start it all up after tech season again to you. So thank you for joining me today and let me know if you have any questions.