Should You Get a Health Savings Account/HSA? - YouTube

Is a Health Savings Account a good option for you? And if you have one, are you maximizing

the benefits of it? In this video, I’m going to cover the positives

and negatives of HSA’s. And then I will reveal the biggest mistake that 95% of HSA

owners make. And finally, I’ll share my own personal

strategy in how to super charge one of the best features of an HSA.

Welcome to Healthy, Wealthy and Wise where we talk about little things that can lead

to big improvements in our financial and physical health. My name is Kevin and I want to thank

you for clicking on this video and, if you like it, please hit that like button. And

also, don’t be afraid to subscribe—because, after-all, it’s free and it’ll make sure

you don’t miss any upcoming videos. Now let’s talk about this crazy year of

2020 where you may be in a situation reassessing your healthcare needs and options due to an

unexpected job loss or job change and may now be considering an HSA. Or maybe you already

have an HSA, but have heard about an extension in making a contribution for 2019 and wondering

what’s that all about—either way, I’m going to give you some information that will

help you in making an informed decision. If you’re wondering what an HSA is, let’s

first talk about what it isn’t. Many people confuse an HSA with a Flexible Spending Account,

or FSA, which is an account run by your employer where you can put aside pre-taxed money for

healthcare expenses with the understanding that you have to use that money for that year—it’s

a use it or lose it account and there can be a lot of headaches with this in accurately

planning how much expenses you will incur in an upcoming year. A Health Savings Account

is very different in that you actually own the account and can take the money with you

if you leave your job. Also, it’s not a use it or lose it account—your money can

rollover from year to year without any penalty. And another exciting difference between an

FSA and an HSA is that you can invest the money of your HSA, which is not an option

for an FSA; we’ll be talking much more about this in a little bit.

Now if you’re considering signing up for an HSA, you also have to sign up for a qualifying

high deductible healthcare plan to be eligible. For 2020, the minimum deductible for a high

deductible healthcare plan is $1,400 for an individual and $2,800 for a family. Another

criterion to be eligible is that the out-of-pocket maximum for an HSA-qualified health plan cannot

be more than $6,900 for individual coverage or $13,800 for family coverage. When signing

up for a plan, an insurer will generally let you know if it’s HSA-eligible, if they don’t,

you will want to contact them to check into that.

So why would you want to sign up for a high deductible plan?—well, there are some good

reasons. If you are relatively healthy and don’t typically have a lot of medical expenses,

then a high deductible plan might be a great option for you because your premiums are often

significantly less than lower deductible plans. Also many employers will put some money into

your account for you—so that’s basically free money given to you, just like if your

employer puts a match into a 401k for you. Now on the other hand, if you don’t like

high deductibles, you plan to receive a higher amount of medical services, or don’t have

money set aside for unexpected medical expenses..then an HSA may not be for you. But I would challenge

you to look at the difference in the cost of your premiums over the year and you may

be surprised in how much the low deductible plans actually cost. When I was looking at

my options last year, my company’s low deductible plan would cost me about $180 every 2 weeks

out of my paycheck or $4,680 over the course of the year whereas the High deductible plan

cost me about $50 every 2 weeks or $1300 for the year. So over the course of the year,

I would pay almost $3,400 more out my paycheck for the low deductible plan. However, by signing

up for the HSA, my company also put $500 into my account so I really came out almost $4000

better and, since I had low medical needs, I came out way ahead on an HSA.

Okay, now, the exciting part about HSAs are the ability to invest the money in your account—and

all of the tax benefits that go with this. You may have heard people talk about the triple

tax benefits of HSAs and you start to realize that they are not just for your health, but

also can help create wealth—2 of the major things this channel is about! So let’s go

over the 3 tax benefits: One, the contributions you make to the account

are tax-free. Two, any withdrawals you make for qualified health expenses are not taxed.

And number three, any money invested in the account grows tax free. This last part is

super exciting because of the implications—and notable because about 95% of HSA accounts

have no investments, which means that there is no opportunity for the money to significantly

grow. You can receive interest in the account, but we know how low interest rates are now

and how little that will produce. So to clarify, 95% of people are only using

their HSA to pay for health expenses completely tax free—and that’s not a bad thing. And

if it’s difficult to put much more money into your account because of other life expenses,

then that’s what you have to do. In this case, I would recommend that you at least

contribute enough money into your account that covers the deductible on your plan so

that you’re not left with the stress of having to pay a lot of money for unexpected

medical expenses. Now…if you have the ability to put a little

extra money into your account, I want you to start thinking of how your HSA can not

only become a place to hold tax free money for medical expenses, but as a place to grow

money tax-free that can help you big-time in retirement. And I would say that if you’re

someone that is actively planning for retirement, an HSA should be something you absolutely

consider. I would even argue that it could be a wiser decision to fully fund your HSA

before an IRA…or even a 401k above any money you have to put into to get your full employer

match...you always want to get that full match of free money when you can.

Does this sound crazy?? Well let me tell you why it’s not. Because let’s say you put

money in your HSA and never need to take out any withdrawals for healthcare expenses. Well,

when you turn 65, then your HSA becomes effectively like an IRA where you can take the money out

penalty-free for any reasons when it will then be taxed at your current income tax rate—UNLESS—it’s

for Healthcare expenses—which then you can withdraw tax-free! And over the years, because

your money was invested, it actually has grown to be more than what you originally put into

the account. Okay--now I’ll share with you my ultimate

strategy that is good for anyone that does not absolutely need to use their HSA to pay

for expenses at that time you incur them and just requires a little bit of organizational

skills. And that is, for co-pays or small medical costs, I just pay out of my pocket

and don’t take a withdrawal from my HSA, again only because I don’t absolutely need

get reimbursed at the time. But I keep the receipts in a folder labeled unreimbursed

medical expenses—and keep in mind that they do have to be for dates after I established

my HSA. And this is where it’s great—so the money I don’t take out for the healthcare

expense, I let it grow by investing it in my HSA—with annualized returns of about

7% compounded year over year. And then once I retire or if I find myself out of work,

I can get withdrawals from my HSA using my old unreimbursed healthcare receipts—and

those receipts can be from 20 years ago! This is another great benefit of an HSA that I

find many people that have them don’t realize--you don’t have to pull money out of your HSA

to get reimbursed for medical expenses in the same year that you incurred the expense.

And in this way, I can maximize all 3 of the major tax benefits of HSAs, which again, 95%

of people with HSAs don’t do! So now, you’re thinking maybe an HSA is

for you, right? Well let me first share with you the HSA contribution limits that are set

annually by the IRS; for 2020, they are $3,550 for individual coverage and $7,100 for a family.

Keep in mind, if you employer puts in money for you, then that counts against the limit—so

for example, if you employer puts $500 into your account, then you can only put in $3,050

to reach the max contribution for self-only coverage. If you’re age 55 or older, you

can save an extra $1,000 each year to play catch-up. With these annual limits, an HSA

could never replace an IRA or a 401k, but could definitely play a role in your retirement

planning. Now a lot of this sounds really good, but

there are some things that you have to keep in mind when making this decision—the negatives.

One big thing to keep in mind is if you would ever need to pull money out of an HSA before

you are 65 years old and that money is not used for healthcare expenses, you would face

a 20% penalty plus any taxes that may be due. The other major thing to remember, just like

any investment, there are no guarantees that you will have positive returns and could even

lose money—however, history shows us that investments over time greatly outpace interest

earned in savings accounts and inflation. So if you have a weak stomach when the market

has a downturn, which as we know happens, then the investment part of an HSA may not

be for you, although, keep in mind that you will likely have a lot of options within your

HSA brokerage account that are less risky. So you may have heard that due to the unexpected

events of this year, that the deadline to file your federal taxes and make contributions

to your IRA and HSA have been extended to July 15th. If you had an HSA in 2019 and didn’t

reach the maximal contributions for that year, $3,500 for individuals and $7,000 for families—plus

the extra $1,000 if you’re 55 or older, then you can make a contribution to your HSA

up to that limit—you will just want to make sure it’s labeled for 2019, that will lower

your taxes for the year. For state taxes, you will want to check with your specific

state for details. Well that was a lot of information! I would

love for you to comment on if you would like more detailed info. on HSAs and specifically

what you would like to know more about them. I was thinking about doing a comparison with

IRAs and 401k’s if there’s interest. This channel is for you and I want to talk about

the things that you’re interested in. I hope you have found this information helpful,

and if you did, once again, please subscribe to the channel. As always, I hope that we

can all learn from each other on how to take little, easy steps in making big improvements

in our lives. Thank you again for watching and until next time, have a great day!