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The TRUTH About an HSA For Financial Independence - Health Savings Account Investing - YouTube
Channel: Jarrad Morrow
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if you don't contribute to an hsa every
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year then you could be losing out on
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hundreds of thousands of dollars
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and if you are then you could still be
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missing out on that same amount not
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because you're a dummy or anything like
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that
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but because you might not know how to
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use a health savings account to its full
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potential the employee benefit research
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institution found that only six percent
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of people
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who have an hsa are using it in a way
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that i'll show you
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in this video so the odds are that
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you're a part of that 94
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of people let's fix that to be more
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specific you could potentially be
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missing out on anywhere between 300
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000 and 600 000 plus dollars
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now if that doesn't get your attention
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then i don't know what will in this
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video i'm gonna break down
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everything you need to know about an hsa
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so you can increase your chances of
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growing it to anywhere between 300 and
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600
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000 later in the video i'll take you
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into my hsa account to show you how much
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i have and how i'm using it to invest
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for financial independence and early
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retirement we're gonna cover things like
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the what why and how
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my top three hsa accounts that i
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recommend i'll show you how to use the
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account to maximize its potential
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and i'll share with you some of the tips
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and tricks that i found along the way
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to turn my health savings account into
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the ultimate wealth building machine
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this is one of those that i promise
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you'll regret not knowing about in the
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future so pay attention
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and watch until the end hey i'm jared
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and on this channel we talk about all
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things personal finance investing and
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financial independence feel free to
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leave any questions down in the comments
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below and i will answer
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every single one of them for you if you
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could do me a huge favor and hulk smash
[95]
that thumbs up button i would greatly
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appreciate it it helped support myself
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my dog molly and of course this channel
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so thank you so much in advance
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at a basic level an hsa is a savings
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account that allows you
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to contribute pre-tax money to it every
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single year
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starting in 2021 the lonely single
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people out there like me
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can you can contribute up to thirty six
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hundred dollars per year
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and a family can contribute up to
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seventy two hundred dollars per year
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just a heads up expect those amounts to
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increase over time so if you're watching
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this at some point in the future
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then they're probably higher but
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everything else in this video is
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relevant
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if you're 55 years or older then you can
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contribute an additional
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one thousand dollars per year on top of
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that thirty six hundred dollars and
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seventy two hundred dollars the average
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person who doesn't know any better
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looks at a health savings account as a
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way to save for future health costs
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hence the name health savings account
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that person puts money into the account
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throughout the year
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and withdraws it whenever they have any
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medical expenses to pay for but instead
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of looking at it as a health
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savings account i want you to look at it
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as a health investment account to be
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more specific i want you to look at and
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treat an hsa
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like it's an additional retirement
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account think of it like a 401k
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ira 403b and so on except for the fact
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that an hsa is a completely tax-free
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investment account
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more about that in just a few minutes
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though so hang on think of an hsa as a
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way to start preparing now
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for medical expenses you're going to
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have when you're 60
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70 and 80 plus years old because we all
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have medical expenses or more medical
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expenses
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as time goes on it's like insurance for
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yourself except for the fact that you
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get to keep
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all of the money that you put into it i
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personally look at an hsa as a way to
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earmark less of the retirement money
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that's in my 401k
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ira and taxable investment accounts for
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medical expenses
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real quick i need to get this out of the
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way nothing that i say in this video
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should be taken as
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investment advice please please do your
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own research
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i'm just a guy who makes youtube videos
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and enjoys drawing stick figures in his
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free time when you put money into an
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hsa there's three things that you can do
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with it number one
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you can let the money just sit in the
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account and slowly lose value due to
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inflation number two
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you can spend the money in the account
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on medical expenses that you have today
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or in the near future so if you go to
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the doctor next week to get that cough
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checked out
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if you pick up a prescription if you
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need to get a filling at the dentist or
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any sort of
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medical costs like that then you'd
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withdraw money from your hsa account to
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pay for those expenses today or
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number three you could invest the money
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within your hsa account and let it sit
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there now if you really want to maximize
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an hsa
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then investing the money and not
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withdrawing it for today's medical
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expenses
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is what you'd want to do this might not
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make sense on the surface though because
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if you have medical expenses to pay for
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today then how are you supposed to
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pay for them if you don't use money from
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your hsa great question that we need to
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address
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you'd pay for those expenses out of your
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pocket today
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to allow your money to be invested
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within your hsa
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for as long as possible this is how you
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really unlock one of the many benefits
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of an hsa you'd want to avoid taking
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money out for as long as possible
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so that it can stay in the account to
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continue to grow i cannot stress that
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more
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let's compare two people who both
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contribute to their hsa
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for one year so that you can truly
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understand the power of investing money
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in the account
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we'll call these two people asher and
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kinsley the only difference between the
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two is that one of them spends
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all of his hsa contributions for the
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year on medical expenses
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in that same year without investing it
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and the other decides to max out her
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hsa for the year invest that money
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within the account
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and pay for any medical expenses out of
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her own pocket
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so that that money can stay invested
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within her within her hsa because asher
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contributed thirty six hundred dollars
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and spent thirty six hundred dollars
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from
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his health savings account he is left
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with zero dollars in his hsa account
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by the end of the year because kensli
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contributed thirty six hundred dollars
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and spent
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zero dollars from her hsa she she's left
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with thirty six hundred dollars plus a
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little extra from the growth of her
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investments
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by the end of that same year but here's
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where it gets interesting for kensley
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and not so much for asher because he
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decided to spend all of his hsa money
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right away she doesn't plan on touching
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at 3 600
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at all she's gonna let it stay invested
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within her within her hsa account
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and pay for her medical expenses out of
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pocket not only is kinsley the name of
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my niece and probably one of my absolute
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favorite humans in the world but she's
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actually really smart for doing this if
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she didn't touch that money and let it
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stay
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invested for 20 years then that one year
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contribution of 3 600
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at a 7 return would turn into almost
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14 000 and it would grow to 27
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400 in 30 years so even if kinsley had
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the same 3 600
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in medical expenses as asher for that
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first year that she paid for out of
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pocket
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she's still ahead overall by 23
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800 in 30 years because the growth from
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her money that was invested within the
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hsa because 27
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400 minus 3 600 equals of course
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23 800 math think about that for a
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minute you'd only need to contribute to
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an hsa for
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one year and invest the money to have it
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grow to that amount
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if you were a family that contributed
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contributed the 7 200
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for just one year then after 20 years it
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would grow to 27
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800 and over fifty four thousand eight
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hundred dollars in 30 years the key here
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is to try to keep your money invested
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within the account
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for as long as possible so it has time
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to grow
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we'll cover how to invest the money here
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in just a few minutes so hang tight but
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hold on because an hsa has another
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benefit that's overlooked a lot
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it's probably the biggest selling point
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of a health savings account
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an hsa has triple tax savings it's not
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very often
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that the irs legally allows you to skip
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out on paying taxes once
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let alone three different times the
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first way the money that you contribute
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to in hsa
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is pre-tax money from your paycheck the
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second way
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the gains from your investment growth
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dividend payouts and
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interest accumulation is not taxed at
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all and the third way
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when you withdraw the money for medical
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expenses you do not
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pay any taxes on that distribution one
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two three an hsa is like a roth ira
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on steroids so it's extremely important
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to take advantage of it if you're able
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to
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one way that i'm super charging my hsa
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even more
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is by charging all of my medical
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expenses over the years
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to a good rewards credit card and paying
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it off at the end of every
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single month since i'll be spending
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money on these medical expenses out of
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pocket anyways
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i might as well charge it instead of
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paying cash so i can take advantage of
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my two percent cash back rewards so not
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only am i earning two percent on the
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money that i'm already
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spending i'm also getting a triple tax
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savings
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and growing my money by investing it if
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you feel comfortable with doing this
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then go for it if not then no big deal i
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just wanted to make sure that i
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mentioned it now there's a couple of
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different ways to open an hsa i'll talk
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about my top three accounts in just a
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minute first you need to be at least
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18 years old and covered under a high
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deductible health plan
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sometimes referred to as an hdhp for
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short here's an example of what mine
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looks like that i have through my
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employer
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notice how it says hd hp as part of the
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name
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that would be the one that you'd want to
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choose to be eligible for an hsa i'd say
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that the majority of employers offer an
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hghp
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if you can't find one then talk to your
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hr department or manager
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if you get health insurance on your own
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then you should definitely
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be you should definitely have access to
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a high deductible health plan once you
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sign up for a high deductible health
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plan
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you'll need to open an actual hsa
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account now there's two ways to do this
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so that you can start investing
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in that hsa the first is through your
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employer if your employer offers a high
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deductible health plan then they may
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or may not offer you an hsa account as
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well
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if they do then they've already chosen
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the third party company for you
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so then they should so at that point
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they should provide you with a link to
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open up an account
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now my employer employer uses a company
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called health equity which is who i
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which is the third party company that i
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manage my hsa through
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money gets deposited directly into my
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health equity account
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every time i get paid and at that point
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i can start managing that money if your
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employer does not provide an hsa company
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for you or you get health insurance on
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your own
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then you need to open up an hsa account
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on your own in this case you'll have to
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deposit money into the account
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on your own unless you're able to set
[625]
something up with your employer where
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they send your hsa contributions to
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directly to the hsa provider
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that you've chosen every time you get
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paid there's three hsa providers that
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i'm familiar with
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with where you can open up an hsa
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account the first is health equity now
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they do a great job but my one problem
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with them are the fees that they charge
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now to be transparent they only charge a
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monthly point
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zero three percent admit administration
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fee
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which isn't a lot but i'd prefer not to
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pay anything at all if i can
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if my employer didn't choose them for me
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automatically then i would have chosen
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a different one which i'll talk about in
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just a minute the second is fidelity
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now they offer an hsa with zero fees
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now i like zero the zero fees part of
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fidelity but
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the one thing that i hate about fidelity
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in general is their user
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interface for investing i personally
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think that it's trash
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and extremely confusing but if you
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already have a fidelity account it might
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make sense to open up your hsa account
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through them as well
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the third is lively now they're by far
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my favorite they charge zero for
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zero fees give you access to low cost
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index funds
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and their user interface is very very
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good
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they would be my personal number one
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choice let me give you a little behind
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the scenes of what i'm actually doing to
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utilize lively
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now since my employer forces me to
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automatically have my hsa contributions
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deposited into health into my health
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equity account or a health equity
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account
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i'm personally rolling over all of those
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contributions
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to a lively hsa account every single
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time that i get paid
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so that i can avoid the fees that health
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equity charges me so keep that in mind
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no matter who the hsa provider is that
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your employer chooses for you
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you have full control over being able to
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roll that
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roll that account or that money in that
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account into a different hsa company if
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you are not happy with the one that your
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employer has chosen for you i'll have a
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link to open an account with each of
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these three provider providers down in
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the description below
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to be transparent the lively link is an
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affiliate link so if you open up an
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account using it
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then it does help support this channel
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and myself of course at no extra cost to
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you let me make this very clear
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i can't tell you what to do with your
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money or how to invest it
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but i personally only invest my hs money
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into low-cost index funds now i created
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a whole video on
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everything you need to know about
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low-cost index funded investing
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that i'll link up right above my head
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and down in the description as well i've
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been investing in my hsa for
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less than two years and my account is
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currently worth almost 7
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800 at this point in time now that's an
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investment return
[781]
of 26.9 over that time period so far so
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good and that example for kinsley was
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only at a seven percent return so i'm
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ahead of the curve at this point the
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nice thing about an hsa is that you have
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full control over it and can take it
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everywhere with you once you start
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putting money
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into one it is not tied to your employer
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at
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all if you leave your current employer
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then you still have access to that
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account
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through that third-party hsa company
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that you use or if you leave your
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current employer and you don't like that
[810]
third-party hsa company that they're
[812]
using so if i didn't like health equity
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then i could roll all of that money that
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i had in health equity
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over to over to a company like lively
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technically you can withdraw your money
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for non-medical expenses
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but it does come with a little bit of a
[826]
price actually a pretty big price
[828]
if you use your funds to pay for things
[830]
other than qualified medical expenses
[832]
then those funds will be taxed as
[834]
ordinary income
[835]
and the irs will impose a twenty percent
[838]
penalty as well for example if you spend
[840]
five hundred dollars on non-qualified
[842]
medical expenses out of your hsa
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then you'll pay a penalty of 100 this
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500
[848]
will also be shown as earned income for
[850]
the year as well
[851]
which you'll pay taxes on not cool don't
[854]
do this because it defeats the whole
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purpose
[856]
of an hsa i'll have a link down below in
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the description to give you access to a
[861]
list of
[862]
qualified medical expenses if you want
[864]
to kind of check it out
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now just a heads up there are a lot of
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things covered and i'd honestly only
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expect
[870]
for this list to grow as time goes on so
[872]
if you look at that you're like
[874]
oh this isn't covered this isn't covered
[876]
don't worry because
[877]
the coverage usually grows from year to
[879]
year and they keep adding more and more
[881]
things
[881]
to consider as qualified medical
[884]
expenses but after you've reached the
[885]
age of 65
[887]
or if you become disabled you can
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withdraw hsa funds without penalty
[892]
but the amount that you withdraw will
[894]
still be taxed as ordinary income just
[896]
to touch on the insane amount of
[898]
tax-free money that you can accumulate
[900]
over time
[900]
if you maxed out your hsa at 3 600
[904]
per year as a single person over 30
[906]
years then at a 7
[908]
return your account would grow to 340
[912]
thousand dollars of tax-free money if
[915]
you max out your hsa at seventy two
[917]
hundred dollars per year as a family
[919]
over thirty years then at a seven
[921]
percent return
[922]
your account would grow to
[925]
thousand dollars of tax free money don't
[928]
forget to hulk smash that thumbs up
[930]
button before you go
[931]
check out the description for more
[932]
resources and playlists to help out with
[934]
all of your personal finance investing
[936]
and financial independence needs i'll
[938]
see in the next one friends
[940]
done
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