1 00:00:00,000 --> 00:00:07,980 Ralph: Do you know about an often overlooked we to save for healthcare expenses and lower your taxes at the same time, the answer is health savings accounts. 2 00:00:08,330 --> 00:00:15,819 They allow you to set aside pre-tax money to pay for qualified medical expenses, but what exactly are these HSA's? 3 00:00:15,959 --> 00:00:20,549 How do they work and what are the pros and cons we'll stay tuned today and you'll find out. 4 00:00:50,452 --> 00:00:52,912 Welcome to our personal finance Friday show. 5 00:00:52,912 --> 00:00:54,442 I'm so glad you chose to join us. 6 00:00:54,712 --> 00:00:57,052 I want to thank you for listening and supporting the program. 7 00:00:57,382 --> 00:01:00,952 I'm coming to you from the Estep Farm at the Saggio Accounting studio today. 8 00:01:00,952 --> 00:01:03,232 So let me put my podcaster on. 9 00:01:03,712 --> 00:01:06,652 Take off these overalls and push the adding machine to the side. 10 00:01:06,682 --> 00:01:10,342 Let's get some financial wisdom from a Christian perspective 11 00:01:10,732 --> 00:01:11,032 today. 12 00:01:11,032 --> 00:01:14,332 Our topic is health savings accounts or HSA as they're commonly called. 13 00:01:14,752 --> 00:01:19,582 These accounts are becoming incredibly popular as a way to save and pay for a medical expenses. 14 00:01:19,962 --> 00:01:23,212 In a tax advantaged way, but a lot of people don't know what they are. 15 00:01:23,212 --> 00:01:33,502 So today we're going to handle what exactly are HSA's, how do they work and what are the benefits, but potential drawbacks of these accounts that's what we'll be exploring today. 16 00:01:34,312 --> 00:01:37,042 Don't forget to subscribe to the show and join our email list. 17 00:01:37,042 --> 00:01:40,552 You do that at askralphpodcast.com . So you don't miss tomorrow show. 18 00:01:40,942 --> 00:01:41,332 Tomorrow. 19 00:01:41,332 --> 00:01:42,952 We're going to talk about tax evasion. 20 00:01:42,952 --> 00:01:43,582 No, just kidding. 21 00:01:43,822 --> 00:01:45,712 We're going to talk about types of income. 22 00:01:45,712 --> 00:01:47,422 The IRS does not tax. 23 00:01:47,422 --> 00:01:49,252 Believe it or not there actually some things out there. 24 00:01:49,462 --> 00:01:50,722 They don't tax. 25 00:01:51,025 --> 00:01:53,422 So let's start by looking at a relevant Bible verse. 26 00:01:53,422 --> 00:01:53,722 Today. 27 00:01:53,722 --> 00:02:03,652 It comes from the book of Proverbs chapter 21, verse 20, and it says precious treasure and oil are in a wise man's dwelling, But a foolish man devours it. 28 00:02:04,072 --> 00:02:08,752 This verse reminds us that a wise person saves and stores up resources for the future. 29 00:02:09,112 --> 00:02:18,824 While a foolish one lives only in the moment and uses up everything they have when it comes to health care costs, having money set aside in the HSA is a wise approach. 30 00:02:19,154 --> 00:02:23,444 It allows you to prepare for future expenses rather than being caught off guard. 31 00:02:23,444 --> 00:02:26,264 And if you listen to our show, I always want you to be prepared. 32 00:02:26,714 --> 00:02:29,384 So what exactly is a health savings account? 33 00:02:29,834 --> 00:02:33,704 And here's the basic truth and HSA is a tax advantage savings account. 34 00:02:33,734 --> 00:02:34,904 It's really nothing more than that. 35 00:02:35,264 --> 00:02:38,054 That can be used to pay for qualified medical expenses. 36 00:02:38,084 --> 00:02:41,264 Tax-free now here's a deal to be eligible. 37 00:02:41,264 --> 00:02:46,214 You must have enrolled in a high deductible plan or what they call an H D H P. 38 00:02:46,604 --> 00:02:47,864 So here's how it works. 39 00:02:48,194 --> 00:02:56,234 You or your employer can contribute pre-tax or what they call tax deductible dollars to the HSA account up to an annual limit set by the IRS. 40 00:02:56,504 --> 00:03:04,514 Now in 2023, that contribution limit is $3850 for individual coverage or $7750.00 for family coverage. 41 00:03:04,754 --> 00:03:09,974 Now if you're 55 or older, you can also make an additional $1,000 catch-up contribution. 42 00:03:10,334 --> 00:03:11,774 Now here's the best part of this. 43 00:03:12,194 --> 00:03:16,094 The money you contribute, grows tax free, and you can invest those funds, just like an IRA. 44 00:03:16,094 --> 00:03:30,794 Once your balance reaches a certain amount, then you can use the money tax free on qualified medical expenses, like doctor visits, prescriptions, dental care, vision care, and more, as long as it's used for medical, it's done tax rate. 45 00:03:31,004 --> 00:03:35,024 So let's talk about some of the benefits of these HSA accounts. 46 00:03:35,054 --> 00:03:38,444 First of all, contributions are pre tax or tax deductible. 47 00:03:38,774 --> 00:03:40,304 What that basically means is that. 48 00:03:40,364 --> 00:03:42,614 Allows you to lower your taxable income. 49 00:03:42,824 --> 00:03:46,574 So the money you put in here comes off of the top before your taxes are calculated. 50 00:03:46,994 --> 00:03:51,914 The funds grow tax free and can be invested once your balance is high enough. 51 00:03:52,244 --> 00:03:59,144 What I'm saying there is, if you set it up in a savings account, you may have some limits on how much you can invest until you get to a certain amount. 52 00:03:59,624 --> 00:04:00,944 Now here's the best part. 53 00:04:01,214 --> 00:04:04,814 Withdraws for qualified medical expenses are completely tax-free. 54 00:04:04,814 --> 00:04:06,794 There is no tax consequences at all. 55 00:04:07,064 --> 00:04:11,954 So it's basically a way to make your medical expenses tax deductible. 56 00:04:11,954 --> 00:04:22,004 And see right now, if you're trying to do it as a schedule, a or itemized deduction, there's income limitations, and they're even the question of, do you even have enough to itemize? 57 00:04:22,004 --> 00:04:24,674 So that's one of the benefits to these, HSA plans. 58 00:04:25,004 --> 00:04:30,644 And here's another great benefit you can carry over and accumulate funding your HSA from year to year. 59 00:04:30,884 --> 00:04:32,744 There's no use it or lose it. 60 00:04:32,744 --> 00:04:34,724 Like there is in a flexible spending account. 61 00:04:34,994 --> 00:04:38,384 So this money can just continue to build up and continue to build up. 62 00:04:38,684 --> 00:04:42,794 And like I said, HSA funds can be withdrawn penalty free for any purpose. 63 00:04:43,094 --> 00:04:44,894 Once you reach age 65. 64 00:04:44,894 --> 00:04:48,404 So once you hit 65, You can withdraw it whenever you want. 65 00:04:48,524 --> 00:04:51,194 Now again, nonmedical withdrawals are taxed as income. 66 00:04:51,974 --> 00:04:52,934 Here's another great thing. 67 00:04:53,104 --> 00:04:58,724 HSA funds can be used to pay for Medicare parts, A - B - D premiums, and expenses. 68 00:04:59,024 --> 00:05:03,344 You own this account and keep it, even if you change health plans or employers. 69 00:05:03,344 --> 00:05:07,844 So if you decide to move from one employer to another, you can still use the same HSA. 70 00:05:07,844 --> 00:05:10,274 And it doesn't matter whether you go from traditional insurance. 71 00:05:10,604 --> 00:05:11,324 To Medicare. 72 00:05:11,684 --> 00:05:17,114 As you can see proper utilizing an HSA in conjunction with a high deductible health plan. 73 00:05:17,354 --> 00:05:19,934 Can provide excellent savings for medical costs. 74 00:05:20,144 --> 00:05:27,314 Not only do you get an upfront tax break, which is beautiful, but you also get tax-free growth and withdrawals when used for medical expenses. 75 00:05:27,674 --> 00:05:35,714 Now let's talk about how do you get started with one of these HSA's first things first, you got to have a high deductible health plan to be eligible for 2023. 76 00:05:35,714 --> 00:05:36,554 That means your plan. 77 00:05:36,584 --> 00:05:39,944 A minimum deductible must be at least 1500 for individuals. 78 00:05:40,184 --> 00:05:42,314 Or $3,000 for family coverage. 79 00:05:42,794 --> 00:05:47,084 When you look at your health plan documents, it tells you what is your minimum deductible? 80 00:05:47,084 --> 00:05:49,394 So they gotta be at least what they call high deductible plans. 81 00:05:49,754 --> 00:05:52,694 The next thing you do is you open an HSA account with a bank. 82 00:05:52,934 --> 00:05:56,234 You could do it with a credit union insurance companies or other approved providers. 83 00:05:56,564 --> 00:05:58,004 I just set one of these up myself. 84 00:05:58,184 --> 00:05:59,414 You can go Google it online. 85 00:05:59,444 --> 00:06:00,704 You could find a company that do it. 86 00:06:01,064 --> 00:06:01,244 Now. 87 00:06:01,244 --> 00:06:06,254 Sometimes your employer may offer an HSA option, or you can open an account independently. 88 00:06:06,734 --> 00:06:07,604 So here's the deal though. 89 00:06:07,874 --> 00:06:12,314 Make sure to only choose an HSA custodian that does not charge you a monthly fee. 90 00:06:12,734 --> 00:06:17,054 Then you or your employer can contribute to your HSA account up to the annual contribution limit. 91 00:06:17,594 --> 00:06:24,164 Be sure to save itemized receipts for your medical expenses though, in case you need to provide documentation for withdrawals in the future. 92 00:06:24,344 --> 00:06:33,564 When you come into somebody like me to get your taxes done, you're going to get a form which is called a 1099HSA which is going to show, Hey, Ralph took out $4,000 in medical expenses. 93 00:06:33,864 --> 00:06:35,184 I'm just going to ask you the question though. 94 00:06:35,214 --> 00:06:37,074 Do you have proof that they were all spent for medical? 95 00:06:37,584 --> 00:06:42,444 If you have the funds consider investing your HSA balance so your money can grow over time. 96 00:06:42,834 --> 00:06:45,384 Many HSA providers offer various investment options. 97 00:06:45,384 --> 00:06:46,644 And we talked about that a minute ago. 98 00:06:47,064 --> 00:06:50,574 Once you get a certain amount in your account, you can decide to where you want to invest that. 99 00:06:50,964 --> 00:06:56,484 And be sure to use your HSA funds to pay for any and all qualified medical expenses. 100 00:06:57,084 --> 00:06:59,574 So that you get that triple tax benefit. 101 00:07:00,204 --> 00:07:01,194 If you use it right. 102 00:07:01,524 --> 00:07:06,204 an HSA can truly supercharge your medical savings and lower your healthcare costs. 103 00:07:06,864 --> 00:07:09,174 Now there are some potential downside to HSA. 104 00:07:09,174 --> 00:07:10,854 So let's talk about some of the downside. 105 00:07:10,854 --> 00:07:14,214 Here's a few things to consider, to be eligible for an HSA. 106 00:07:14,214 --> 00:07:16,134 You must have a high deductible health plan. 107 00:07:16,584 --> 00:07:19,794 This means higher out-of-pocket costs before insurance kicks in. 108 00:07:20,214 --> 00:07:23,634 You make sure to have savings on hand for unexpected medical expenses. 109 00:07:23,634 --> 00:07:26,154 Unfortunately, you got to look at that and that's part of the deal. 110 00:07:26,154 --> 00:07:28,014 You got to have one of those high deductible plans. 111 00:07:28,494 --> 00:07:34,764 you may pay higher health plan premiums for a high deductible plan, which reduces some of the savings benefits. 112 00:07:35,124 --> 00:07:35,724 But here's the deal. 113 00:07:35,724 --> 00:07:36,084 Folks. 114 00:07:36,204 --> 00:07:38,934 You got to do the math to see if the tax savings are worth it. 115 00:07:39,524 --> 00:07:44,034 HSA's do come with administration fees, account fees or investment fees. 116 00:07:44,214 --> 00:07:47,214 So you've got to research carefully before choosing a provider. 117 00:07:47,274 --> 00:07:48,444 That's why I said a few minutes ago. 118 00:07:48,864 --> 00:07:51,564 Do some research and find a provider with the lowest fees. 119 00:07:51,864 --> 00:07:52,614 Now here's the deal. 120 00:07:52,914 --> 00:07:57,054 Nonmedical withdrawals are taxed as income and incur a 20% penalty. 121 00:07:57,354 --> 00:07:59,094 Until age 65. 122 00:07:59,304 --> 00:08:05,274 So it's really important that you only use this for medical and that you maintain records and receipts for your expenses. 123 00:08:05,754 --> 00:08:06,564 Now here's another thing. 124 00:08:06,924 --> 00:08:10,164 Contribution limits are much lower than 401k or IRA. 125 00:08:10,164 --> 00:08:13,044 So HSA's generally can't replace full retirement accounts. 126 00:08:13,254 --> 00:08:16,344 This is not the vehicle to completely change your retirement. 127 00:08:16,344 --> 00:08:18,294 But if you know, you're going to have a certain amount of. 128 00:08:18,804 --> 00:08:20,184 Medical expenses each year. 129 00:08:20,214 --> 00:08:22,194 This is a great way to make some of them tax deductible. 130 00:08:22,554 --> 00:08:24,294 So with some savvy planning. 131 00:08:24,624 --> 00:08:28,854 These limitations can be overcome or minimized to leverage the benefits of an HSA. 132 00:08:29,244 --> 00:08:32,304 But you gotta make sure you educate yourself on the pros and cons. 133 00:08:32,304 --> 00:08:33,594 Listen to programs like mine. 134 00:08:33,834 --> 00:08:36,834 So you can decide if an HSA is really the best fit for you. 135 00:08:37,144 --> 00:08:40,564 Before we wrap up, I want to remind all of our listeners to visit our podcast page. 136 00:08:40,864 --> 00:08:48,394 You do that at askralphpodcast.com there you can leave us a review, share your thoughts, or even send us a message with questions for future episodes. 137 00:08:48,694 --> 00:08:50,404 We're building our calendar for the future. 138 00:08:50,554 --> 00:09:00,574 If you've got an idea of something you'd like for me to talk about on the show, make sure you bring it up and while you're there, make sure you join our email list so we can send you our daily email with what's going on with the show. 139 00:09:01,024 --> 00:09:04,744 People are really enjoying getting that daily emails so they know what Ralph's going to be talking about. 140 00:09:05,194 --> 00:09:09,694 And while you're there, you can also schedule a consultation, me to discuss your specific circumstances. 141 00:09:10,054 --> 00:09:11,404 And here's my ask for today. 142 00:09:12,034 --> 00:09:17,164 Share this episode, if you know someone who could benefit from an HSA, there's a lot of people that don't know about these. 143 00:09:17,344 --> 00:09:18,934 They don't understand the benefits of these. 144 00:09:18,964 --> 00:09:21,694 So do me a favor, share this program and share our program in general with them. 145 00:09:21,964 --> 00:09:25,054 So let's do a quick recap of what we've covered today. 146 00:09:25,294 --> 00:09:26,194 Here's the basics. 147 00:09:26,524 --> 00:09:31,834 Health savings accounts or HSA's allow tax-free savings and withdraws for medical expenses. 148 00:09:31,834 --> 00:09:33,514 When used with a high deductible health plan. 149 00:09:33,514 --> 00:09:34,084 That's the key. 150 00:09:34,684 --> 00:09:37,084 Contributions lower your taxable income. 151 00:09:37,114 --> 00:09:39,664 That's the benefit funds grow tax free. 152 00:09:39,724 --> 00:09:44,584 Another great thing and withdrawals for medical expenses are completely tax-free. 153 00:09:45,184 --> 00:09:48,064 So, like I said, as long as use them for medical expenses, there's no tax. 154 00:09:48,454 --> 00:09:49,414 To start an HSA. 155 00:09:49,414 --> 00:09:54,874 You need a qualifying high deductible health plan and to open an account with an approved HSA provider folks. 156 00:09:54,904 --> 00:09:56,524 It's really not that complicated. 157 00:09:56,854 --> 00:10:03,724 Make sure you've got the high deductible plan, which to be honest with you, I've not seen many that aren't these days insurance is super expensive. 158 00:10:03,934 --> 00:10:06,694 So most people are going with the high deductible plans in order to afford them. 159 00:10:07,174 --> 00:10:10,954 And you maximize your tax benefits by contributing up to the annual limits. 160 00:10:11,284 --> 00:10:13,174 And investing your HSA funds. 161 00:10:13,744 --> 00:10:14,284 Here's the deal. 162 00:10:14,524 --> 00:10:20,944 Use your HSA strategically to pay for medical expenses, but be aware of limitations like high deductibles or fees. 163 00:10:21,124 --> 00:10:23,794 That's why you got to research and decide who you're going to partner with. 164 00:10:24,484 --> 00:10:30,124 Overall a health savings account can be a phenomenal way to save for current and future medical expenses. 165 00:10:30,394 --> 00:10:31,774 While slashing your tax bill. 166 00:10:31,804 --> 00:10:33,094 Hey, that's what we all want to do. 167 00:10:33,604 --> 00:10:35,284 Take full advantage of this option. 168 00:10:35,314 --> 00:10:44,374 If it's available to you as always, I hope this overview has been helpful and given you ideas on how to optimize your finances and honor God through wise money management. 169 00:10:44,704 --> 00:10:45,904 Be sure to visit our website. 170 00:10:45,964 --> 00:10:51,154 As I always say at askralphpodcast.com for the show notes and a full transcript of this episode. 171 00:10:51,514 --> 00:10:52,624 Please share this episode. 172 00:10:52,624 --> 00:10:57,184 As I said, with any friends or family who might benefit from learning about health savings accounts. 173 00:10:57,574 --> 00:11:00,514 The more we can spread financial literacy and education the better. 174 00:11:00,514 --> 00:11:06,064 And remember this Proverbs chapter 21 verse 20 says store up savings wisely for the future. 175 00:11:06,574 --> 00:11:08,614 Rather than living foolishly in the moment. 176 00:11:09,254 --> 00:11:12,334 Ask the Lord for discernment as you make decisions surrounding your health costs. 177 00:11:12,604 --> 00:11:14,164 And you're saving strategies. 178 00:11:14,374 --> 00:11:20,704 He desires to guide you into wise financial stewardship, but you've got to invest the time in understanding 179 00:11:20,864 --> 00:11:22,004 that's going to wrap it up for today. 180 00:11:22,004 --> 00:11:27,284 I appreciate you joining me as I always say, stay financially savvy out there and God bless. 181 00:11:27,404 --> 00:11:29,294 This is Ralph Estep signing off for now. 182 00:11:29,414 --> 00:11:30,254 See you next time.