TS 23 - Understanding The Power of the Health Savings Account

Again, today we are talking about the HSA or health savings account, and what we want to talk about are sort of the things to think about, what you ... h- the advantages it brings, uh, how to use it, and what the long-term impact is for this.

You know, I, I am a, a tax adv- a tax and financial advisor, so, um, I'm coming from that perspective, but this is only general advice, so make sure to, uh, connect with your own advisor or, uh, someone, uh, with this knowledge if you're going to use it moving forward.

So one reason we really like the HSA i- and you may have heard of this term, is because it's triple tax advantage, and it's the only product in the United States that we have that is, has this sort of, uh, m-makeup.

And what we mean by triple tax advantage is when you put the money into the account, you get a tax break 'cause you're not getting, uh, you're not paying taxes on that money when you put it into the account.

It's almost like, um, a 401[k] contribution or something like that where you don't have to pay taxes on it right away.

And then it's in the account, and if you invest it, it can grow tax-free, meaning it's growing, you're investing, you're changing things up.

There's no tax impact when you do so, um, while it's growing.

And then the third way is if you then take the money out, um, and use it for qualified medical expenses, it's also tax-free.

So that's why it gets that name, that triple tax advantage.

It's tax-free going in, it's tax-free while growing, and it's tax-free if you're paying for the right things when, uh, you're taking it out.

And because of that nature, and because this is really the only tool that's like that, it becomes a very powerful resource for certain individuals, uh, if they can t- manage the other aspects of having an HSA.

And fro- from the very get-go, it's one of the first sort of tools that we have access to that, you know, I'm encouraging people to move towards because of that triple tax advantage and often because they have access to it already.

The important thing to know about an HSA is you don't have to spend the money i- that year that you put it in.

You can actually invest it long term.

Because, uh, it used to be the FSAs were a much bigger sort of tool to save for healthcare purposes, and when you're, uh...

You know, like if you remember your parents having an FSA, or if you have a small FSA now, you know anything you put in has to be paid out by the end of the year.

And I remember, you know, growing up when I was in, uh, middle school and high school, that my parents would often be uploading, up, up, like moving forward medical expenses towards the end of the year just to get rid of FSA money that they had put in.

In fact, I got LASIK one year solely because there was a buildup of FSA money in the, uh, account that was gonna go away if my parents didn't use it, and so they just had me get LASIK.

Uh, which was great, I'm really glad I did, but a weird way and reason to get LASIK.

And so the HSA did away with that.

They said, you know, "We...

You can put money in for health purposes, but it doesn't have to come out at the end of the year." You can only put in so much, but it doesn't have to come out at the end of the year.

And in fact, the way the HSAs work is you can invest that like an IRA or Roth IRA or whatever sort of tool that you use, you can invest it very simil- similarly so it grows over time.

And this is a very powerful wrinkle in the HSA that previous FSA versions and other he- medical, uh, expense tools didn't have.

So now you can invest this HSA, and so essentially becomes a retirement planning tool as well.