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Health Savings Account / HSA: Rules and Limits UPDATED for 2021 - YouTube
Channel: Healthy, Wealthy, and Wise
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is a health savings account a good
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option for you
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and if you have one are you maximizing
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the benefits of it
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in this video i'm going to cover the
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positives and negatives of hsas
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and then i will reveal the biggest
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mistake that 95
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of hsa owners make and finally
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i'll share my own personal strategy and
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how to supercharge one of the best
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features of an hsa
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this was for my second video on youtube
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which you definitely can tell how much
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stiffer i was back then
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for me it's sort of like looking at old
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pictures of your awkward teenage years
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but anyway i've noticed it's been
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starting to get some interest now that
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everyone is looking to the health care
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options for the upcoming year
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so i thought i would edit and update
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some of the information that is specific
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for 2021
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and also had some information from
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another video i did on how the cares act
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enhanced not only hsa benefits but also
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hras and fsas
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now that the channel has evolved to
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focus mostly on investing you'll see how
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an hsa is not just a way to manage your
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health care
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but how it can be another tool for
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growing your wealth if you use it the
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right way
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and this video shows you how to do that
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so stay tuned
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if you're wondering what an hsa is let's
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first talk about what it isn't
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many people confuse an hsa with a
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flexible spending account or
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fsa which is an account run by your
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employer
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where you can put aside pre-tax money
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for health care expenses
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with the understanding that you have to
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use that money for that year
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it's a use it or lose it account and
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there can be a lot of headaches with
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this and accurately planning how much
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expenses
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you will incur in an upcoming year a
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health savings account
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is very different in that you actually
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own the account
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and can take the money with you if you
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leave your job
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also it's not a use it or lose it
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account your money can roll over from
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year to year without any penalty
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and another exciting difference between
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an fsa and hsa
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is that you can invest the money of your
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hsa
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which is not an option for an fsa we'll
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be talking
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much more about this in a little bit now
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if you're considering signing up for an
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hsa
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you also have to sign up for a
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qualifying high deductible health care
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plan to be eligible
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update time for 2021 the minimum
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deductible for a high deductible health
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care plan is fourteen hundred dollars
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for an individual
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and twenty eight hundred dollars for a
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family another criterion to be eligible
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is that the out-of-pocket maximum for an
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hsa qualified health plan
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cannot be more than seven thousand
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dollars for individual coverage or
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fourteen thousand dollars for family
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coverage
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when signing up for a plan an insurer
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will generally let you know
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hsa eligible if they don't you will want
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to contact them to check into that
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so why would you want to sign up for a
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high deductible plan
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well there are some good reasons if you
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are relatively healthy and don't
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typically have a lot of medical expenses
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then a high deductible plan might be a
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great option for you because
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your premiums are often significantly
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less than lower deductible plans
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also many employers will put some money
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into your account for you so that's
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basically free money given to you
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just like if your employer puts a match
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into a 401k
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now on the other hand if you don't like
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high deductibles
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you plan to receive a higher amount of
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medical services
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or don't have money set aside for
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unexpected medical expenses
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then an hsa may not be for you but i
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would challenge you to look at the
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difference
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in the cost of your premiums over the
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year and you may be surprised in how
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much the low deductible plans
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actually cost when i was looking at my
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options last year
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my company's low deductible plan would
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cost me about 180 dollars every two
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weeks out of my paycheck
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or close to forty seven hundred dollars
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over the course of the year
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whereas the high deductible plan cost me
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about fifty dollars every two weeks
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or thirteen hundred dollars for the year
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so over the course of the year i would
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pay almost thirty four hundred dollars
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more out of my paycheck for the low
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deductible plan
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however by signing up for the hsa my
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company also put 500
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into my accounts so i really came out
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almost four thousand dollars better
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and since i had low medical needs i came
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out way ahead on an hsa
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okay now the exciting part about hsa is
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or the ability to invest the money in
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your account and all the tax benefits
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that go with this
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you may have heard people talk about the
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triple tax benefits of hsas and you
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start to realize that
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they are not just for your health but
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also can help create wealth
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two of the major things this channel is
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about so let's go over the three tax
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benefits
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one the contributions you make to the
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account are tax-free
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two any withdrawals you make for
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qualified health expenses are not
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taxed and number three any money
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invested in the account grows tax-free
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this last part is super exciting because
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of the implications
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and notable because about 95 of hsa
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accounts
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have no investments which mean that
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there is no opportunity for the money to
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significantly grow
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you could receive interest in the
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account but we know how low interest
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rates are now and how little that will
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produce
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so to clarify ninety five percent of
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people are only using their hsa to pay
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for health expenses
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completely tax free and that's not a bad
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thing
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and if it's difficult to put much more
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money into your account because of other
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life expenses
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then that's what you have to do in this
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case
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i would recommend that you at least
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contribute enough money into your
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account that covers the deductible
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on your plan so that you're not left
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with the stress of having to pay a lot
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of money
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for unexpected medical expenses now
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if you have the ability to put a little
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extra money into your account
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i want you to start thinking of how your
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hsa can not only become a place to hold
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tax-free money for medical expenses
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but as a place to grow money tax-free
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that can help you big time in retirement
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and i would say that if you're someone
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that is actively planning for retirement
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and hsa should be something you
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absolutely consider
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i would even argue that it could be a
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wiser decision to fully fund your hsa
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before an ira
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or even a 401k above any money you have
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to put in to get your full employer
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match
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you always want to get that full match
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of free money when you can
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does this sound crazy well let me tell
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you why it's not
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because let's say you put the money in
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your hsa and never need to take out any
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withdrawals for health care expenses
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well when you turn 65 then your hsa
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becomes effectively like an ira
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where you can take the money out penalty
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free for any reason
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when it will be then be taxed at your
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current income tax rate
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unless it's for health care expenses
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which then you can withdraw tax-free
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and over the years because your money
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was invested it actually has grown to be
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more
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than what you originally put into the
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account
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okay now i'll share with you my ultimate
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strategy
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that is good for anyone that does not
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absolutely need to use their hsa to pay
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for expenses at the time you incur them
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it just requires a little bit of
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organizational skills
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and that is for co-pays or small medical
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costs
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i just pay out of my pocket and don't
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take a withdrawal from my hsa
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again only because i don't absolutely
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need to get reimbursed at that time
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but i keep the receipts in a folder
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labeled unreimbursed medical expenses
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and keep in mind that they do have to be
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for dates after i establish my hsa
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and this is where it's great so the
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money i don't take out for the health
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care expense
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i let it grow by investing it in my hsa
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with danielized returns of about seven
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percent
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compounded year over year and then once
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i retire or if i find myself out of work
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i can get tax free withdrawals from my
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hsa using my
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old unreimbursed healthcare receipts and
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those receipts can be from 20 years ago
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this is another great benefit of an hsa
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that i find many people that have them
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don't realize
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you don't have to pull money out of your
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hsa to get reimbursed for medical
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expenses in the same year that you
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incurred the expense
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and in this way i can maximize all three
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of the major tax benefits of hsas
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which again 95 percent of people with
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hsas don't do
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so now you're thinking maybe an hsa is
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for you right
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well let me share with you the hsa
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contribution limits that are set
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annually by the irs
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for 2021 you can now contribute up to
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thirty six hundred dollars for
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individual coverage in seventy two
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hundred dollars for a family
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keep in mind if your employer puts in
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money for you then that counts against
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the limit
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so for example if your employer puts 500
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into your account
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then you can only put in 3 100 to reach
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the maximal contribution for self-only
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coverage
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if you're age 55 or older you can save
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an extra 1 000
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each year to play catch-up with these
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annual limits an hsa could never replace
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an ira or a 401k
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but could definitely play a role in your
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retirement planning
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now a lot of this sounds really good but
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there are some major things that you
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have to keep in mind when making this
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decision
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the negatives one big thing to keep in
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mind is that
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if you would ever need to pull money out
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of an hsa before you are 65 years old
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and that the money is not used for
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health care expenses
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you would face a 20 penalty plus any
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taxes that may be due
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the other major thing to remember just
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like any investment
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there are no guarantees that you will
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have positive returns and could even
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lose money
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however history shows us that
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investments over time greatly outpace
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interest earned in savings accounts and
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inflation
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so if you have a weak stomach when the
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market has a downturn which as we know
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happens
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this year all too well then the
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investment part of an hsa may not be for
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you
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although keep in mind that you will
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likely have a lot of options within your
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hsa
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brokerage account that are less risky
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so you may have heard that due to the
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unexpected events of this year
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the federal government passed a law to
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help mitigate the effects to the people
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most
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negatively impacted by it that law was
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called the cares act
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and was passed in march most people know
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it as the law that provided stimulus
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checks to individuals and provided
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enhanced unemployment benefits
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but the law did some other things as
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well and today
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we're going to talk about how it
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affected people that have health savings
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accounts
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or hsas flexible spending accounts or
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fsas
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and health reimbursement arrangements or
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accounts also called
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hras let's start on the one chance that
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only affects hsas first
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in regards to the cares act one of the
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big changes is that telehealth visits
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are
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fully covered where you now don't have
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to meet the deductible to have the visit
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covered
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now keep in mind this change is in place
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only temporarily through the end of
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2021.
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so for routine doctor visits if you have
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an hsa
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you can do a telehealth visit at no cost
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to you which can be a big money saver
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because in the past you most likely
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would have had to pay for the entire
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visit on your own
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assuming you hadn't met the higher
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deductible these plans require you to
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have
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so the telehealth visit is a fantastic
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option for savings and costs
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and time for those who are already
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enjoying the lower premiums that a high
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deductible plan offers
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and this coverage is for any
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non-emergency visit you need so it
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doesn't have to be related to the
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pandemic
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now the next two big improvements apply
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to all three of the accounts we
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mentioned before
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hsas hras and fsas and the great thing
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about these improvements are that they
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are permanent changes for each of these
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plans
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the first of these two permanent
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improvements is that over-the-counter
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medications
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are now covered for tax savings
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reimbursement without a prescription
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from your doctor
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so if you need to get something for a
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headache or a cough or allergies
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you can get these reimbursed from your
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accounts without having to go to the
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doctor to get a prescription
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the second permanent improvement is that
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for the first time ever
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female hygiene products are now eligible
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for reimbursement on a pre-tax basis
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through any of these accounts
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so i think you can see which half of our
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audience is really going to like this
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benefit
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ladies i'm sure you're thinking it's
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about time
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now as a guy i can't and won't claim to
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know a lot about female hygiene products
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and how much they cost over the course
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of a year
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but i can say that anytime you buy
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something with money that wasn't taxed
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from your paycheck
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you've already saved at least whatever
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your effective income tax rate is
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and let's say that's 14.6 percent which
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is what the average person paid in some
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of the most recent data i've seen
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so that's pretty good all three of these
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changes can lead to big savings
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depending on your health care needs
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i hope you found this video helpful and
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if you did please hit that like button
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share with your friends and family and
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subscribe to the channel
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let us know in the comments section what
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things you've done to save money with
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these types of accounts
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as you know i'm always open to learning
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something new myself
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again i hope that we can all learn from
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each other on how to take little easy
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steps
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in making big improvements in our lives
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thank you again for watching
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and until next time have a great day
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[Music]
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