In this week’s episode the guys are talking about one of their favorite account types…HSAs! Join Josh and Austin as they cover what exactly a Health Savings Account is, why they are appealing, and much more. They even throw a few pro tips your way! Listen in now!
Main Talking Points
[1:50] – What is an HSA?
[3:09] – Why are HSAs Appealing?
[5:07] – How to Qualify for an HSA
[7:24] – Withdrawing From an HSA
[8:27] – Pro Tip #1
[10:15] – Who Can Contribute to Your HSA?
[11:21] – How Much Can You Put into Your HSA in a Year?
[12:26] – Pro Tip #2
[15:19] – What Can You Spend Your HSA on?
[19:20] – Dad Joke of the Week
[19:50] – Where Would You Hold an HSA?
[22:15] – What Do You Do with the Outstanding Balance in Your HSA?
[25:48] – Pro Tip #3
[26:47] – How Josh and Austin Use HSAs
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right, hey, hey, hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, we are going to be talking about a three letter acronym. As we know, the finance industry is full of acronyms.
Josh Robb:
Love acronyms.
Austin Wilson:
We are talking about the three letter acronym, HSA, so we’re talking about HSA accounts.
Josh Robb:
Yes, HSA which we all know stands for hippos swimming aggressively, I think. Or, was it hug someone’s arm?
Austin Wilson:
Don’t hug my arm.
Josh Robb:
No.
Austin Wilson:
Please, just don’t.
Josh Robb:
It’s hippos. They kill more people than crocodiles do.
Austin Wilson:
They do. And, speaking of hippos, one of the zoos I saw, it was official Bloomberg Twitter.
Josh Robb:
Oh, it made it on Bloomberg.
Austin Wilson:
Well, Bloomberg, they compile a bunch of Twitter accounts and put them in a feed. And apparently, this zoo in Germany or something, painted a hippo’s nose with non-toxic, they made sure to point out non-toxic paint.
Josh Robb:
Yeah.
Austin Wilson:
But, they painted a hippo’s nose with non-toxic paint and let the hippo paint on some surface of some sort, with their nose.
Josh Robb:
And, it was pretty good? Didn’t they sell it?
Austin Wilson:
Oh, I have no idea. I have no idea what they did. But, someone was really bored.
Josh Robb:
Yes. It was that gorilla that did that.
Austin Wilson:
Was it a guy-rilla or a girl-rilla?
Josh Robb:
Girl-rilla. That’s hard to say.
Austin Wilson:
Girl-rilla?
Josh Robb:
But, they made a movie out of it and everything.
Austin Wilson:
Really?
Josh Robb:
Yeah.
Austin Wilson:
You watch too much TV, I don’t know what you’re talking about.
Josh Robb:
It was a Disney thing. It was a book first, and then it was a movie.
Austin Wilson:
But, the gorilla who painted?
Josh Robb:
Yes. I forget what it was called, though.
Austin Wilson:
Man, we’re getting short on ideas to …
[1:50] – What is an HSA?
Josh Robb:
We’re way off. All right, so HSA.
Austin Wilson:
HSAs.
Josh Robb:
What is that, really?
Austin Wilson:
Well, okay yeah. First of all, it does not stand for any of the things that you said.
Josh Robb:
Okay.
Austin Wilson:
Let’s just get that very clear, real quick. It stands for health, as in your health.
Josh Robb:
Yeah.
Austin Wilson:
Savings, as in your not spending. But sometimes, but we’ll get there. Account. Health savings account.
Josh Robb:
Health savings account.
Austin Wilson:
So that’s where we’re at.
Josh Robb:
Yes.
Austin Wilson:
What is it, Josh? Tell me what an HSA is.
Josh Robb:
Yeah. There are different types of savings vehicles for your healthcare. There’s FSFHAs or-
Austin Wilson:
FSA.
Josh Robb:
FSA.
Austin Wilson:
Flexible savings account.
Josh Robb:
Flexible. And, we’re not going to get into too many details about all the differences, we’re focused on this one. The main reason is most people, this is the account that you’re going to be qualified for.
Austin Wilson:
Because most people have, nowadays, high deductible self health plans.
Josh Robb:
Yes.
Austin Wilson:
That has not always been the case.
Josh Robb:
No. That’s the first requirement for a health savings account is it is a medical savings account designed to help you pay for your medical costs. In order to qualify to have a health savings account, you must be enrolled in a high deductible healthcare plan.
Austin Wilson:
Yes.
Josh Robb:
The IRS gives guidelines to that. They have a minimum amount of deductible that has to be in your plan to qualify for high deductible.
Austin Wilson:
Right.
[3:09] – Why are HSAs Appealing?
Josh Robb:
It’s different for individuals and families, because families, more people they have a higher deductible. If you have that requirement, then you can use this health savings account so we’re going to talk about that. One of the main reasons why a health savings account is appealing is it’s what’s called triple tax advantaged.
Austin Wilson:
Okay, I like the idea of three X.
Josh Robb:
Yes, triple.
Austin Wilson:
Triple.
Josh Robb:
That’s better than double, for sure.
Austin Wilson:
It’s at least one better than double.
Josh Robb:
So triple tax advantaged means that when you put money in, contributions are tax free.
Austin Wilson:
Okay.
Josh Robb:
In fact, you get a deduction.
Austin Wilson:
Yeah, we should clarify that, though, because there’s two ways that HSAs can work.
Josh Robb:
Yes.
Austin Wilson:
I’ve had both in my working career.
Josh Robb:
Yes.
Austin Wilson:
Number one, you can have pre-tax … If you have the HSA actually offered through your employer, you can use it as a pre-tax deduction to lower your taxable income so it’s the same thing as getting a tax deduction but you’re doing it before you pay taxes on it. Number two, it can be you pay for it with post tax dollars. So if it’s not a payroll deduction, you can pay for it with post tax dollars, and then you get a tax deduction at the end of the year when you do your taxes.
Josh Robb:
Yeah.
Austin Wilson:
But, you can’t do both.
Josh Robb:
No. But either way, it is a tax free contribution into there.
Austin Wilson:
Yes.
Josh Robb:
Because you either get your tax back, or you just don’t have any tax counted, income counted towards it.
Austin Wilson:
I guess, it’s probably more beneficial, from a tax perspective, to get it pre-tax, to take it out pre-tax, because if you’re filing the standard deduction anyway …
Josh Robb:
Well, I think it’s on a schedule one.
Austin Wilson:
Oh, is it?
Josh Robb:
But I’m not positive on that.
Austin Wilson:
Okay.
Josh Robb:
I think, either way, you can get the deduction on it.
Austin Wilson:
Got it.
Josh Robb:
So, that’s the contributions going in, you’re not paying any tax on them.
Austin Wilson:
Love it.
Josh Robb:
The growth along the way, because we’re talking about this in a little bit, but you can invest the investments in there, even if you just get interest.
Austin Wilson:
Dividends.
Josh Robb:
Anything growth-wise in the HSA, that’s all tax free. If you then take money out for qualified expenses, which are medical expenses … There’s a lot of nuances to that, we’re not going to spend time with an exhaustive list. But in general, for the qualified medical expense, there’s no tax owed on the distribution.
Austin Wilson:
Yes.
Josh Robb:
Meaning the whole time that money moves in, and around and out, no tax.
Austin Wilson:
Tax free, yeah.
Josh Robb:
Triple tax.
Austin Wilson:
That’s great.
[5:07] – How to Qualify for an HSA
Josh Robb:
I mentioned you need a high deductible plan. There’s also a couple other qualifications for you, that you have to meet in order to have this HSA. So, high deductible is the first one. You have to have no other healthcare coverage. And you say, “Well, why would I have two healthcare plans? They’re already expensive.”
Austin Wilson:
Right.
Josh Robb:
The biggest one people run into with this is Medicare.
Austin Wilson:
Yeah.
Josh Robb:
Once I’m at Medicare age, 65, and I’m on Medicare, I can no longer contribute to an HSA. I can no longer contribute, that’s big. We’re going to talk about that in a minute.
Austin Wilson:
Meaning that your existing HSA’s okay.
Josh Robb:
Yeah. The reason is Medicare is not a high deductible plan. There’s not a high deductible for Medicare, so you’re no longer covered under a plan that’s eligible. If you have two plans and one is not considered high deductible, Medicare’s usually the triggering point, then you no longer can contribute which is the big thing. The other one is you cannot do this if you’re claimed as a dependent on someone else’s tax return.
Austin Wilson:
But, aren’t we all dependent on someone?
Josh Robb:
Not on your tax return, probably. You may be dependent on someone, but not on your tax return.
Austin Wilson:
Yeah. No, you’re right. So a minor, for example.
Josh Robb:
Yes. A minor, for sure.
Austin Wilson:
Even if you’re in the early 20s and you’re still on your parents healthcare plan, you can’t have your own HSA.
Josh Robb:
Right, because you’re claimed as a dependent.
Austin Wilson:
Ahhhh.
Josh Robb:
Once the money is in an HSA and the HSA is established, that is your money. Let’s say an employer contributes to it, because I haven’t got there yet, but contributions can come in by you, you can make contributions, your employer can make contributions, or really, anybody else. It’s weird, but I guess someone could.
Austin Wilson:
You want to put some money in my account?
Josh Robb:
But, once the money’s in your account, it’s yours.
Austin Wilson:
Yeah.
Josh Robb:
There’s no waiting period.
Austin Wilson:
There’s no vesting period.
Josh Robb:
Your company cannot say, “You can’t touch this for three years.”
Austin Wilson:
Right.
Josh Robb:
Once it’s contributed, it’s yours.
Austin Wilson:
And, they can’t take it out.
Josh Robb:
They cannot take it out, it’s yours. Once that HSA is there, it’s not a use it or lose it type of thing. It’s yours and it’s there for as long as you leave it in the account. So it goes back to that Medicare, if you have a balance in your HSA and you switch from your company plan to Medicare, you don’t lose your HSA.
Austin Wilson:
Right.
Josh Robb:
It’s there, you just are limited to what you could do with it, you can no longer contribute. You can only take withdrawals from it.
Austin Wilson:
Right.
Josh Robb:
All right, so that’s important.
[7:24] – Withdrawing From an HSA
Austin Wilson:
And on that note, with the withdraws, there’s a couple different ways you can do that. But, the most common way is that you can get a debit card linked to your HSA. It’s like a checking account.
Josh Robb:
Yes.
Austin Wilson:
It spends the money in the HSA and you know to only use that debit card for health expenses.
Josh Robb:
Yeah. So, there’s really three ways. Debit card, which is just use that for the actual transaction. Checks, not a lot of people use checks anymore, but you can actually get a checkbook for an HSA account and write checks out of it.
Austin Wilson:
Yeah.
Josh Robb:
The third one is applying for reimbursement, so I pay out-of-pocket for something and then I get reimbursed through my HSA for that expense.
Austin Wilson:
If you use your credit card for rewards, that could be a good way to do double dip.
Josh Robb:
There you go. The key is, for any of those, all of those, it doesn’t matter how you do it-
Austin Wilson:
Documentation.
Josh Robb:
Keep the document, keep the receipt, keep the proof of the qualified medical expense because if you’re audited and they want to see your deductions, I took $5000 out of an HSA, “Show me you had $5000 medical expenses.”
Austin Wilson:
Yeah.
[8:27] – Pro Tip #1
Josh Robb:
Pro tip.
Austin Wilson:
Pro tip, Josh.
Josh Robb:
First one, I’m going to have a couple.
Austin Wilson:
Oh, man.
Josh Robb:
First one. There is no timeframe for taking reimbursements for medical expenses, as long as you have documented proof of that medical expense.
Austin Wilson:
So you mean I could have an expense now and pay for it out-of-pocket, have the money in my HSA and then reimburse myself in 20 years?
Josh Robb:
Yes.
Austin Wilson:
As of today’s rules.
Josh Robb:
The caveat is you have to have your HSA established to start cutting point.
Austin Wilson:
When it happens.
Josh Robb:
Let’s say I have an HSA right now and in this year, my HSA stays open, I have a $5000 medical expense.
Austin Wilson:
You break your leg. What do you do?
Josh Robb:
I pay that out-of-pocket. I pay it out of pocket, I’ve got some money in my emergency fund, we’ve talked about that. I take care of the expense and I think, “You know what, I kind of want this money to grow tax free. I’m going to wait.”
Austin Wilson:
Right.
Josh Robb:
As long as I keep that medical expense record and I don’t ever take a deduction for that, 20 years from now, after letting that money grow, I could qualify to take that out as long as I have that proof.
Austin Wilson:
Wow. Pro tip number one, from Josh.
Josh Robb:
That’s interesting. Now, keeping that and talking, and proving that you didn’t ever take, it may be a little harder in 20 years to make sure that, so I don’t know if I’d go that long. But, it’s not a calendar year. It’s not, “Oh man, I forgot to reimburse myself last year. Oh, I’m stuck.” No, you could still do it. That’s the first pro tip. That’s the HSA, high level, what you need to do to be qualified for one. And again, most medical plans, like employer medical plans, will probably a high deductible nowadays.
Austin Wilson:
Yeah.
Josh Robb:
The most plans you run into are high deductible so most people will qualify for an HSA. And then, again, as long as Medicare or any other kind of coverage. If you have certain unions or especially public employment, so if you work for the government, there may be a separate healthcare plan that you’re on that disqualifies you from an HSA.
Austin Wilson:
And, you might have a separate type of health savings.
Josh Robb:
Yeah. There may be a medical savings account, but not an HSA.
Austin Wilson:
Right, exactly.
[10:15] – Who Can Contribute to Your HSA?
Josh Robb:
That’s your qualifications. Contributions, like we talked about. Anybody can do it, your employer or you are the main two that usually do it. The employer actually gets a deduction, if they put it in.
Austin Wilson:
Oh, yeah?
Josh Robb:
There’s a deduction one way or another, so it can be a business expense.
Austin Wilson:
So speaking of contributions …
Josh Robb:
Yes.
Austin Wilson:
The question is could I put all of my money into my HSA?
Josh Robb:
Yeah.
Austin Wilson:
Or, are there limits?
Josh Robb:
There are limits.
Austin Wilson:
Ah, they like to just tie your hands behind your back.
Josh Robb:
Yeah. I will say one last thing. Employers.
Austin Wilson:
Oh.
Josh Robb:
They are required, if they’re a normal plan, so there’s some little caveats like asterisk, but a normal employer, if they give to some, they have to give the same amount to all. There’s a clause that they built into the healthcare plan … Wow, look out!
Austin Wilson:
Whew, spilled my water.
Josh Robb:
We’re all right now.
Austin Wilson:
It’s okay.
Josh Robb:
We’re good.
Austin Wilson:
No worries.
Josh Robb:
There is a clause they built into the healthcare-
Austin Wilson:
This is so exciting.
Josh Robb:
I know, watch Austin clean up his water. There’s a clause they put into the healthcare plan that pretty much states you can’t …
Austin Wilson:
Discriminate, essentially.
[11:21] – How Much Can You Put into Your HSA in a Year?
Josh Robb:
Yeah, pretty much. “Oh, highly compensated get this,” and whatever. No, it’s if you put in a little bit, you’ve got to do it equally for all. That’s just one caveat why an employer, when they make contributions, that they’re limited to. For you, how much can you put in, in a year?
Austin Wilson:
Individually?
Josh Robb:
Individually and group. What have you got?
Austin Wilson:
Okay, I’m going to tell you.
Josh Robb:
You’re going to tell me.
Austin Wilson:
Because I know.
Josh Robb:
You know.
Austin Wilson:
3600.
Josh Robb:
3600.
Austin Wilson:
$3600 for an individual.
Josh Robb:
Yes.
Austin Wilson:
So that’s if you are on your own plan, you’re a solo hombre. Or, lady. That’s your limit, there.
Josh Robb:
What’s the hombreast?
Austin Wilson:
No.
Josh Robb:
Hombriosas?
Austin Wilson:
No. Your brother lives in Texas, he should know this. So anyway, that’s by yourself. Now, if you’ve got a family, so you’ve got a family plan, family health plan, then you can essentially double that. You get 7200.
Josh Robb:
Yeah, 7200.
Austin Wilson:
Yeah.
Josh Robb:
And, they increase that pretty much about $50 per year for the individual and $100 for the family group.
Austin Wilson:
Inflation.
Josh Robb:
Next year, it would be 3650 and 73.
Austin Wilson:
Ish.
Josh Robb:
That’s how it works.
Austin Wilson:
It hasn’t been officially announced.
Josh Robb:
Yeah. It’s been 50 pretty much every year. There’s a catch up, like there is for other contributions.
Austin Wilson:
Like Heinz?
Josh Robb:
Yes. The condiment that you put right on top of your HSA. It’s good. A catch up contribution, if you’re over 55, you get $1000.
Austin Wilson:
Yeah.
[12:26] – Pro Tip #2
Josh Robb:
Here comes my next pro tip.
Austin Wilson:
Pro tip number two.
Josh Robb:
Yes. Now, you can have a single HSA for a group plan. So if it’s my family, I can have one HSA, put 7200 in that for the family, because I’m on a family plan. Or, I could have two, one for me and one for my spouse, and we could still do 7200 total just it has to be split. It doesn’t matter how you split it, you can’t do more together if we’re on the same plan or if we’re on separate plans, that you can’t do more than 3600 each or a total of 72. Now, the catch up contribution is $1000.
Austin Wilson:
Okay.
Josh Robb:
That’s per person.
Austin Wilson:
Not for your family.
Josh Robb:
Not for the family. So if I have one HSA and there’s two of us, HSAs are a lot like other retirement style accounts like IRAs where they’re named to one person, only one owner.
Austin Wilson:
Yeah, like a social security number.
Josh Robb:
Right. Only one person can own these HSAs, it can’t be a joint account. So I can only put $1000 in this HSA, so I could do 7200, then an extra 1000 catch up for 8200. But, if my spouse is also 55, I cannot do the extra for the spouse in that same account because I’ve already used the catch up for that person who owns the account.
So a pro tip would be it’s fine, while you’re younger, to have just one HSA because you can’t get any additional money in either way. But, once you’re 55, if you’re both 55, open up a second HSA if you’re both still in a high deductible plan from 55 to 65, that 10 year window. You can both do that $1000 catch up. Even if you put the 7200 in the one account, just open up for that extra $1000 if you can save it.
Austin Wilson:
Right.
Josh Robb:
Pro tip, extra way to get $1000 triple tax advantaged savings.
Austin Wilson:
Man. You’re going to be HSA pros by the time this episode is over.
Josh Robb:
Oh man, it’s crazy.
Austin Wilson:
Yeah. That is the limit. Obviously, any tax advantaged account is going to have some sort of contribution limit because, well, the government needs taxes.
Josh Robb:
Yes.
Austin Wilson:
They need a lot of taxes.
Josh Robb:
Well, in a sense they don’t want to make this too advantaged towards the high income earners.
Austin Wilson:
Yeah.
Josh Robb:
Because we know healthcare expenses are expensive, so a lot of the lower income earners, they really can’t utilize this for longterm savings. They put money in, get the tax advantage, but they’re usually paying it back out to cover medical expenses. Which is what it’s designed for, which is fine. But, if there was no income limit and no contribution limit, I could put $100,000 in and never pay tax on it.
Austin Wilson:
Right.
Josh Robb:
The IRS is saying, “No, no, we’re going to cap this for medical expenses.” And, I didn’t mention income limits. There is actually no income limits for HSAs.
Austin Wilson:
Yeah.
Josh Robb:
So for high income earners who are out of the income range for IRAs, for Roth IRAs, can no longer contribute to those type of individual retirement accounts, an HSA is a great thing. Make sure you’re maxing that out because it doesn’t matter how much you earn, you get the same amount put in as everybody else, which is great.
Austin Wilson:
Everyone’s on the same limit.
Josh Robb:
Yeah.
Austin Wilson:
So the question then, Josh, is what … Obviously, I can spend this money for qualified medical expenses.
Josh Robb:
Yes.
[15:19] – What Can You Spend Your HSA on?
Austin Wilson:
But, what if I need to take out … Now, we would advise against this. But, what if I “need” to take out this money for any other purpose, other than a medical expense?
Josh Robb:
Yeah. First, medical expenses, those are what you’d think of. They can count towards doctor visits and prescription drugs.
Austin Wilson:
Emergency room.
Josh Robb:
It even goes to dental and chiropractor. Pretty much, medical expenses across the board. What was interesting, when I was doing this research, is for a while, you could not use it for non-prescription drugs, over the counter. They stopped it in, I think it was 2000-
Austin Wilson:
Like Zyrtec, or whatever?
Josh Robb:
In the mid-2000s. But just last year, end of 2019, with the COVID tax relief bill, they included it back in again. And, female hygiene products as well.
Austin Wilson:
Oh.
Josh Robb:
You used to not be able to use it for that.
Austin Wilson:
There you go.
Josh Robb:
They’re expanding the list, which is good, to say, “Okay, here’s more medical expenses,” that should be covered. If you’re using this to pay for medical stuff, non-prescription drugs …
Austin Wilson:
Oh, yeah.
Josh Robb:
Come on. It makes a lot of sense because you need that. I have a headache, I need Tylenol. Man, it’d be nice if I could my HSA, the money I’m already putting away for medical costs for it. Anyway, it’s pretty broad, what it covers. Even, to some extents, transportation to and from. You can use it for quite a few different things.
Austin Wilson:
Like if you need an Uber to the doctor.
Josh Robb:
Again, you’ve got to keep your receipts and be able to show the needs for it. But, for a lot of medical expenses, it covers pretty broad. It’s a lot more broad than, for instance, college savings, 529 plans.
Austin Wilson:
Oh, yeah.
Josh Robb:
They’re a little more narrow. That’s good. But, your question was what if I need it for something else.
Austin Wilson:
Right.
Josh Robb:
The IRS says, “Okay, well we gave you tax deductions, we gave you tax free growth, we’re giving you tax free withdrawals. If you’re going to just try to really take advantage of us, we’re going to have to put limitations on that.” So they have a 20% penalty, it’s a 20% penalty now.
Austin Wilson:
Now, that’s on the dollars not the growth.
Josh Robb:
That’s 20% penalty on distributions that are not qualified.
Austin Wilson:
Yeah, distribution dollars.
Josh Robb:
So if I put in 5000 and I take 5000 out, like a Roth, that’s not penalized or taxed because it was my money to begin with.
Austin Wilson:
Yeah.
Josh Robb:
Not in this, because you got the deduction on it they’re saying, “Now this money is qualified and now it counts.” So a 20% penalty and income tax on that distribution. So let’s say I’m in the 20% tax bracket, that’s a 40% tax on my distribution, when you account the penalty in there as well.
Austin Wilson:
They’re really dis-incentivizing people.
Josh Robb:
They really don’t want you to do that.
Austin Wilson:
No.
Josh Robb:
Now, they understand that, let’s say you’re a pretty healthy individual and use this health savings account your whole working career, and you don’t really use it much, it’ll grow pretty big. And you say, “Well, I may not really be able to use this up.” So after the age 65, or at 65 and beyond, you are actually allowed to withdrawal it and they remove that penalty. You still pay income tax. It becomes similar to what an IRA is.
Austin Wilson:
Yeah, it’s tax deferred.
Josh Robb:
It’s tax deferred at this point. So you do pay income tax on the distributions, but no penalty. This becomes a pretty cool savings vehicle.
Austin Wilson:
Oh, yeah.
Josh Robb:
Again, it’s another IRA in a standpoint on how that’s looked at, at retirement.
Austin Wilson:
Yeah.
Josh Robb:
And again, 65 is when Medicare kicks in. That’s when you can no longer contribute anymore anyway, so they’re saying, “Hey, there’s no more advantage for contributions into this. You can start using it. And, even if you don’t need it for medical expense, you can take some money out, it’ll just be like an IRA.”
Austin Wilson:
Nice. That could be a secret weapon for retiring.
Josh Robb:
It is, it is a great weapon.
Austin Wilson:
We’re probably just getting to the point where people who are retiring have had them for a long time.
Josh Robb:
So 2003 was, I think, the year that they signed it into law, when George Bush passed this Care Act or whatever.
Austin Wilson:
We’re only at 20-ish years.
Josh Robb:
Yeah.
Austin Wilson:
So think of in another 10 years, you’ll see people who’ve had them their entire working career. Those are going to be some pretty sizeable accounts, I’m sure.
Josh Robb:
Yeah.
Austin Wilson:
At some point.
Josh Robb:
If they were smart early on, in not utilizing the full amount for their current expenses and were saving them.
[19:20] – Dad Joke of the Week
Austin Wilson:
Yeah. All right, Josh, it’s time. It’s Thursday, you’re getting a dad joke of the week.
Josh Robb:
I am ready.
Austin Wilson:
It’s more of a dad thought of the week.
Josh Robb:
Okay.
Austin Wilson:
Remember when we were kids, there was things called Mood Rings?
Josh Robb:
Mood Rings, yes.
Austin Wilson:
Everyone played with them and gave different colors.
Josh Robb:
Yeah. You put it on, and if you’re grumpy, it turns-
Austin Wilson:
I don’t think it really worked.
Josh Robb:
A color.
Austin Wilson:
It was a joke.
Josh Robb:
Yeah.
Austin Wilson:
But yeah, someone stole my Mood Ring.
Josh Robb:
Oh no.
Austin Wilson:
I don’t know how I feel about that.
Josh Robb:
You haven’t decided. I’m waiting for it to tell me.
Austin Wilson:
Yeah, exactly. That’s my dad thought of the week.
Josh Robb:
I like it.
[19:50] – Where Would You Hold an HSA?
Austin Wilson:
So the next question, then, is where would you have or hold an HSA, right?
Josh Robb:
Yeah. In your pocket.
Austin Wilson:
A tax savings envelope.
Josh Robb:
Yes, just write it on there.
Austin Wilson:
Is it envelope or envelope?
Josh Robb:
Envelope, envelope? Well, it depends on if you mailed it or you’re receiving it. I don’t know.
Austin Wilson:
Okay. Where do you hold your HSA? And, there’s a couple options. First of all, depending on your employer and the health plan that your employer offers, they may have one already set up and a preferred provider already. And then, that’s the one that they may put money into or whatever, it’s all set up. That could be employer chosen for you, which is a very great option. A lot of times, those can have … Every different option can have different limits on what you can and can’t do with the investment side of it, which we’re going to get to in a little bit. Things look a little bit different, depending on where you hold it.
Josh Robb:
Yes.
Austin Wilson:
The rules are the same, as far as taxes and ingoing and outgoing money, and all that. But, what you can do with the money when it’s in there can look a little bit different. But, number one is as the custodian, or whatever, that your employer decides, based on your health plan.
Josh Robb:
Yeah.
Austin Wilson:
Number two is if your employer doesn’t necessarily have a preferred option, you can really get an HSA account almost anywhere.
Josh Robb:
Right.
Austin Wilson:
A lot of banks offer them, a lot of investment custodians offer them and you can just open one up, and put all your social security number and digits, whatever they want to know, in there. Probably some health plan information as well. And, there you go, you’ll have it there. That’s where to keep it, in a nutshell. There’s a lot of options.
Josh Robb:
Yeah. And if your employer doesn’t you require you to use a certain HSA plan, we would encourage you to shop around and find … There should be one out there that does not cost anything.
Austin Wilson:
Yeah.
Josh Robb:
These accounts are really to your advantage so if you could find one with little to no expenses, ongoing costs for maintenance or anything like that, it’s to your advantage. Because the longer you let this grow and the less it’s going to cost you, the better it’s going to be.
Austin Wilson:
Nowadays, it is not uncommon to find a zero fee.
Josh Robb:
Yes.
Austin Wilson:
Those have really just been launched in the last handful of years, as far … I’m going to specifically say Fidelity, because I’ve heard of that one a lot, and that was marketed as a new, zero fee HSA. I’m not promoting that.
Josh Robb:
They’re a large custodian.
Austin Wilson:
They’re a large custodian. But they just recently, a couple years ago, launched their free, zero fee HSA. But, a lot of other custodians are going to offer the same sort of thing.
[22:15] – What Do You Do with the Outstanding Balance in Your HSA?
Josh Robb:
So then, I’ve got this money. And if I’m doing what we’re talking about, where I am not spending it all, I’m using my regular cash to pay for my medical expenses and it’s growing. What do I do with this? It’s just cash sitting there, and we all know interest rates are so low, what should I do with this, Austin?
Austin Wilson:
There’s a couple options. So it depends.
Josh Robb:
Wow, that’s a good one.
Austin Wilson:
This is Josh’s favorite answer.
Josh Robb:
I should say that.
Austin Wilson:
Yeah, you should say that. In moderation, you should do XYZ. No, for real, it depends on what your family’s situation is. If your family is planning on utilizing the triple tax advantaging just for that, but using the health savings account, the money that’s going in is going to be money spent, within reason, at a certain time, on healthcare expenses, you probably want to leave a lot of it in either cash or very conservative investments.
Josh Robb:
You want it to be there when you need it.
Austin Wilson:
Exactly. Now, the longer your timeframe is from when you plan on anticipating to need this, the more you should invest larger portions. So if you are at a point in your life where you’re pretty healthy, your family’s healthy or especially if you’re single, and you really don’t dip into this much, you can just cashflow your medical expenses with your paychecks, then you can actually use this as a nice investment account, choose how it gets invested and let it grow, tax free, for until you need it.
Josh Robb:
Yeah.
Austin Wilson:
Which is a pretty cool thing. I would say that, generally, it depends on when you need it. If you need it soon, either don’t invest it, you can leave it in cash, it’s going to be fine. It’s still going to accumulate and maybe earn a little bit of interest. Or, the longer you have from now until you need it, you can go ahead and start investing it.
With a lot of these accounts, most places offer mutual funds as options of what you can do with this money. Some of them have a minimum cash threshold that you need to hold there, some don’t. ETFs, and stocks and individual things are now becoming options in these accounts. If you want to build portfolios, that’s a way to do it. But, my general advice is keep it to a risk tolerance that you are comfortable with if you would need it.
Josh Robb:
Yeah.
Austin Wilson:
Don’t bet the horse on …
Josh Robb:
Some gaming stock.
Austin Wilson:
Yeah, GameStop.
Josh Robb:
Yeah. So one example or one idea, tip if you want to call it that, would be let’s say I have a $5000 deductible in my plan. I may keep $5000 cash and invest the rest. So I know if there’s every an emergency where I just can’t come up with the money, I have my full deductible covered.
Austin Wilson:
Yeah.
Josh Robb:
Once I hit my deductible, then my expenses for my medical costs go way down. Yeah, I may have a co-pay or something, but in general it’s a lot less.
Austin Wilson:
Yeah.
Josh Robb:
I would keep $5000 cash and everything above that, I would invest. That’s an example of protecting that need for the short term while investing a bigger chunk for the long term.
Austin Wilson:
And, another way to even take that one step further is healthcare plans also have a maximum out-of-pocket. You could actually add another tier onto that. You could have up to your deductible in a cash or cash equivalent, maybe you want to earn a little yield or whatever, something really short term. And, then from your deductible amount up to your max out-of-pocket, you can then have something a little bit more conservative because you could dip into that, theoretically, within a year. That way, if you I don’t know, need some crazy surgery maybe. And then, after that point, you could go full growth mode or whatever you want, if your risk tolerance allows it. Because within a year anyway, you’re not going to need that.
Josh Robb:
Yeah and you can make the adjustment later.
Austin Wilson:
Exactly.
Josh Robb:
That’s just some ideas. If you have four kids and they’re always hurting themselves or getting sick, keeping an eye on that full out-of-pocket for a year. Just say, “You know what, that’s my normal life, I usually get close to that max, I should be more aware of that.”
Austin Wilson:
Yeah, absolutely.
Josh Robb:
Wherever you’re at.
[25:48] – Pro Tip #3
Austin Wilson:
So, Josh, I have a pro tip as well.
Josh Robb:
Oh, you’ve got one ready.
Austin Wilson:
Austin’s pro tip. Josh had two, I only have one.
Josh Robb:
Yes.
Austin Wilson:
But, suppose you want to take a career change. A lot of people do it.
Josh Robb:
I don’t, I like my job.
Austin Wilson:
I know, same here.
Josh Robb:
Okay.
Austin Wilson:
But, a lot of people do it.
Josh Robb:
This is a vantage point, yeah.
Austin Wilson:
I’ve done it. And, I learned this. It actually was a factor in timing of a change, at one point.
Josh Robb:
Oh, wow.
Austin Wilson:
Because I knew that, at a certain point in January, I was going to get an employer contribution into my HSA and I timed my effective end date of my job after that.
Josh Robb:
Nice.
[26:47] – How Josh and Austin Use HSAs
Austin Wilson:
And, it worked out very well. So if you’re thinking about doing that, these little things can really add up because your employer could easily put 500, 1000 more, who knows, dollars into your HSA. So look at those little things that could add up, as a factor. Just move things maybe a week or something and it could really help out. That’s a pretty cool thing. That’s my pro tip. So, Josh, let’s start this off with we have different family situations. Let’s talk about how we use HSAs, and then some closing thoughts.
Josh Robb:
Yeah.
Austin Wilson:
So go ahead, you already hit the nail on the head. You have four kids.
Josh Robb:
Yeah, I do have four kids. And, when I first opened an HSA a handful of years ago, it was just that flow through, get the deduction, but I used it all. At the end of the year, I barely had a balance. Which was fine and it worked fine. But, I’ve just recently decided that if I can budget and cashflow as much of that medical cost as possible and let this grow, then I’ll have better longterm results from this. So I’ve been trying to do that. This is the first full year where I have been paying our medical costs out-of-pocket. So far this year, we’re late October, early November-
Austin Wilson:
Getting towards the end.
Josh Robb:
Yes. We haven’t had any huge, major medical costs so it’s been working out. I do, in mine, I’m able to invest. I do keep some cash on hand, not my full deductible amount but I do have some that, if there was an expense or whatever, I could dip into that in cash.
Austin Wilson:
Right.
Josh Robb:
And then, I could liquidate whatever I need to, if I really have to. But, the goal will be to, over the next handful of years, to let that grow and slowly let my cash amount build up to about that deductible, out-of-pocket, somewhere in that range and I’m just going to leave it and put the rest in. But for now, I’m splitting it a third, a third, a third, in different groups. That’s what I’m doing. But, I’ve been thankful that this year, we haven’t had any huge costs.
Austin Wilson:
Right.
Josh Robb:
But also, I’ve been able to increase a little bit of my savings. I’m not quite maxing it out yet, but that’s my goal to get there, to get the full family in. Sometimes, at the end of the year, I just throw some money from my savings account over, just to get the max. But month to month, I’m not quite getting to that max contribution yet. That’s where I’m at. What about you?
Austin Wilson:
Yeah. I mean, we’re pretty healthy individuals, in general. Now, our family has its own set of special circumstances regarding our sweet little girl. But, she fortunately does not cost us a ton of money out of pocket. So we have been able to save and we’re trying to invest and grow for the longer term.
We also view our emergency fund as something we could dip into for healthcare expenses if we need it, at this point. And that’s totally separate, but I would go there first instead of my HSA actually, because I’m trying to accumulate and grow at this point. That’s our goal right now, is when we have healthcare expenses we just cashflow it at this point, if we can, hopefully without dipping into savings. But if we have to, that’s what they’re there for. And, our HSA, we’re growing it as we can. It’s fun for me, as an investment guy, to get to-
Josh Robb:
Pick a couple things.
Austin Wilson:
Pick a couple things here and there, and have a little bit of fun with it. But also, keep in mind that it’s my family’s important money so being responsible with it. That’s how we do it. But, everyone’s situation’s different. You just have to choose what’s best for you, whether that be your risk tolerance or how you fund things as they go. Everyone’s financial situation’s different. But, it’s a really, really powerful tool. I’m thinking it’s going to be hugely powerful tool in another 10 or 20 years, as these people have had 20, or 30 or 40 years to accumulate these accounts.
Josh Robb:
Yeah. I think it’s probably seasonal, too. I know a couple of my kids are going to probably need braces in a couple of years. So there may be years where there’s just going to be more costs and I just know it. It may those times where I use some of the cash in there. It just depends where you’re at. Or again, when you’re in childbearing years, having a baby, that is not cheap.
Austin Wilson:
No, it’s not.
Josh Robb:
So those are, again, part of the reason why the last handful of years is there were costs, you’re hitting your deductible on that.
Austin Wilson:
Real quick.
Josh Robb:
Right away. So to be able to cashflow or pay for that is huge. So get that tax deduction by putting the money in, but you know it’s just going right back out.
Austin Wilson:
Absolutely.
Josh Robb:
It’s just where you’re at with your life, that’s fine.
Austin Wilson:
So two reminders.
Josh Robb:
Yes.
Austin Wilson:
Because it’s only November.
Josh Robb:
It is.
Austin Wilson:
So number one, it’s still not too late, it’s only November.
Josh Robb:
Absolutely.
Austin Wilson:
It’s still not too late to enter our second half stock draft competition. You probably will beat Josh, probably not me.
Josh Robb:
Not Austin, he’s up near the top there.
Austin Wilson:
Yeah. You can start with a fresh $100,000 and really see if you can-
Josh Robb:
Can I start with a fresh 100,000?
Austin Wilson:
No. Actually, I made the rules when we made this so you can’t close and start over.
Josh Robb:
That’s right, you can’t start over again. Yes.
Austin Wilson:
But yeah, you can join that, we would love to have you. It’s fun to just rub it into each other when we’re doing well or not. Number two, as always, check out our free gift to you. It’s a brief list of eight principles of timeless investing, overarching investment themes meant to keep you on track to meet your longterm goals. We don’t specifically talk about HSAs, but it’s an incredibly powerful tool that can be a part, not of everyone’s, but of most people’s financial situation. So check it out, it’s free on our website. Josh, how can people help us grow this podcast?
Josh Robb:
Yeah. Make sure you subscribe, that way every Thursday, you get our newest episode sent directly to whatever you use to listen to podcasts. Leave us a review on Apple Podcasts, it’s always great, helps more people find us. And, if you have any questions, thoughts or have a topic you’d love us to talk about, shoot us an email at hello@theinvesteddads.com. We’d love to hear from you and love to talk about those ideas that you’re concerned or wondering about. And then, lastly, if you know somebody who is asking about HSAs and they were confused with what that acronym meant and you need us to straighten them out-
Austin Wilson:
It’s quite possible.
Josh Robb:
Just share this episode with them.
Austin Wilson:
All right, well until next Thursday, have a great week.
Josh Robb:
All right, talk to you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
