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Get the Most From Your HSA

MoneyWise

Christian talk radio with Rob West

September 3, 2022

If you qualify for an HSA, you want to make the most of it. But they’re not right for everyone. We’ll talk about where they do the most good and where they’ll have little impact on your budget today on MoneyWise. HSAs can help greatly to save on medical expenses and reduce your tax liability. Money goes into the account tax-deferred, and you can use it tax-free for qualified medical expenses. That’s if you qualify. To be eligible for an HSA, you must have a high deductible health plan or HDHP. That means in 2022, your deductible for medical expenses, the point where your plan kicks in, must be at least $1, 400 for an individual or $2, 800 for a family. If that’s you, you want to take full advantage of an HSA. Many financial advisers will tell you it’s also a terrific way to save for retirement - for some folks. That’s because at age 65, the penalty for using the money for non-medical reasons goes away, while money used for medical bills is still tax-deferred. So they’re a real win-win, but again, only for some people. If you withdraw money from a retirement account after age 59 , you’re taxed on it, but you don’t pay a penalty. You can use the money for anything, but you do pay taxes on all of it, no matter what you use it for. With an HSA, after age 65, if you use the money for non-medical expenses you’re still taxed. However, at that age, you’ll probably have more medical expenses than you would earlier in life. When you use HSA money to meet those medical needs, it’s tax-free. So in that sense, it’s better than a conventional retirement plan. It’s a double dip. Now, who’s in that fortunate group? These are folks who don’t need to tap into their HSA funds all the time for short-term health care. They're in a position to stockpile that cash for retirement in addition to other qualified plans like a 401k. It’s such a good deal that some advisors will actually tell those individuals to pay medical bills out of pocket so they allow the money in their HSA to gain compound earnings for retirement. This group typically has low medical expenses and rarely reaches their health plan deductible. They’re usually young and have the opportunity to accumulate more money over a lifetime. So this group can maximize their HSA’s potential by investing the money in mutual funds or stocks and not spending it. HSAs are not like flexible spending accounts, so the money keeps rolling over from year to year with compound earnings. By the way, you can contribute to an HSA up to $3650 for an individual and $7, 300 for a family in 2022, plus an additional $1, 000 for people 55 or over. So that’s great for folks in that group. Young, healthy, and able to contribute the max to their HSA for years and years, but they’re in the minority. What about other folks? Well, most people who qualify for an HSA fall into a large middle group, and they still want to take full advantage of this opportunity. They’re folks who have to tap into the account to meet their medical expenses. In fact, more than half of HSA owners exhaust their total balance every year. But that’s okay, and it’s really what the HSA was designed for. They’re able to take advantage of the tax savings. The money they put in and use for medical expenses is tax-free, so it’s still a good deal, even if the account never builds retirement savings. Now, that still leaves one group who might be eligible for a health savings account, that is, they have a high deductible health plan but they’re still paying a lot out of pocket. For them, a health savings plan by itself won’t be much help. What they really need is to get on a plan with lower deductibles. If that’s you, it might mean paying more in premiums, but you can shop around for a plan that won’t nickel and dime you to death after meeting the deductible. Now, no matter what your medical costs are, you can also think outside the box, and contact our friends at Christian Healthcare Ministries. You’ll find them online at CHministries. org. They have medical sharing plans that could save you a bundle while meeting your healthcare needs. On today’s program, Rob also answers listener questions: ● How can you begin investing with an inheritance? ● Does it make sense to use retirement funds to pay off a mortgage early? ● Is it wise to do a cash-out refinance on a mortgage to pay off consumer debt? RESOURCES MENTIONED: ● Betterment ● Wealthfront ● Schwab Intelligent Portfolios

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