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Did you know? Health Savings Accounts (HSAs) offer a triple tax advantage for your medical expenses! Join Ralph Estep, Jr., as he dives into the details with our latest podcast episode.
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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.
Ralph:
They allow you to set aside pre-tax money to pay for qualified medical expenses, but what exactly are these HSA's?
Ralph:
How do they work and what are the pros and cons we'll stay tuned today and you'll find out.
Ralph:
Welcome to our personal finance Friday show.
Ralph:
I'm so glad you chose to join us.
Ralph:
I want to thank you for listening and supporting the program.
Ralph:
I'm coming to you from the Estep Farm at the Saggio Accounting studio today.
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So let me put my podcaster on.
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Take off these overalls and push the adding machine to the side.
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Let's get some financial wisdom from a Christian perspective
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today.
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Our topic is health savings accounts or HSA as they're commonly called.
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These accounts are becoming incredibly popular as a way to save and pay for a medical expenses.
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In a tax advantaged way, but a lot of people don't know what they are.
Ralph:
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.
Ralph:
Don't forget to subscribe to the show and join our email list.
Ralph:
You do that at askralphpodcast.com . So you don't miss tomorrow show.
Ralph:
Tomorrow.
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We're going to talk about tax evasion.
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No, just kidding.
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We're going to talk about types of income.
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The IRS does not tax.
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Believe it or not there actually some things out there.
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They don't tax.
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So let's start by looking at a relevant Bible verse.
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Today.
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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.
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This verse reminds us that a wise person saves and stores up resources for the future.
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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.
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It allows you to prepare for future expenses rather than being caught off guard.
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And if you listen to our show, I always want you to be prepared.
Ralph:
So what exactly is a health savings account?
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And here's the basic truth and HSA is a tax advantage savings account.
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It's really nothing more than that.
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That can be used to pay for qualified medical expenses.
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Tax-free now here's a deal to be eligible.
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You must have enrolled in a high deductible plan or what they call an H D H P.
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So here's how it works.
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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.
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Now in 2023, that contribution limit is $3850 for individual coverage or $7750.00 for family coverage.
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Now if you're 55 or older, you can also make an additional $1,000 catch-up contribution.
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Now here's the best part of this.
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The money you contribute, grows tax free, and you can invest those funds, just like an IRA.
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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.
Ralph:
So let's talk about some of the benefits of these HSA accounts.
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First of all, contributions are pre tax or tax deductible.
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What that basically means is that.
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Allows you to lower your taxable income.
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So the money you put in here comes off of the top before your taxes are calculated.
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The funds grow tax free and can be invested once your balance is high enough.
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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.
Ralph:
Now here's the best part.
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Withdraws for qualified medical expenses are completely tax-free.
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There is no tax consequences at all.
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So it's basically a way to make your medical expenses tax deductible.
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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?
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So that's one of the benefits to these, HSA plans.
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And here's another great benefit you can carry over and accumulate funding your HSA from year to year.
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There's no use it or lose it.
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Like there is in a flexible spending account.
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So this money can just continue to build up and continue to build up.
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And like I said, HSA funds can be withdrawn penalty free for any purpose.
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Once you reach age 65.
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So once you hit 65, You can withdraw it whenever you want.
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Now again, nonmedical withdrawals are taxed as income.
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Here's another great thing.
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HSA funds can be used to pay for Medicare parts, A - B - D premiums, and expenses.
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You own this account and keep it, even if you change health plans or employers.
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So if you decide to move from one employer to another, you can still use the same HSA.
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And it doesn't matter whether you go from traditional insurance.
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To Medicare.
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As you can see proper utilizing an HSA in conjunction with a high deductible health plan.
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Can provide excellent savings for medical costs.
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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.
Ralph:
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.
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That means your plan.
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A minimum deductible must be at least 1500 for individuals.
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Or $3,000 for family coverage.
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When you look at your health plan documents, it tells you what is your minimum deductible?
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So they gotta be at least what they call high deductible plans.
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The next thing you do is you open an HSA account with a bank.
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You could do it with a credit union insurance companies or other approved providers.
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I just set one of these up myself.
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You can go Google it online.
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You could find a company that do it.
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Now.
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Sometimes your employer may offer an HSA option, or you can open an account independently.
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So here's the deal though.
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Make sure to only choose an HSA custodian that does not charge you a monthly fee.
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Then you or your employer can contribute to your HSA account up to the annual contribution limit.
Ralph:
Be sure to save itemized receipts for your medical expenses though, in case you need to provide documentation for withdrawals in the future.
Ralph:
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.
Ralph:
I'm just going to ask you the question though.
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Do you have proof that they were all spent for medical?
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If you have the funds consider investing your HSA balance so your money can grow over time.
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Many HSA providers offer various investment options.
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And we talked about that a minute ago.
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Once you get a certain amount in your account, you can decide to where you want to invest that.
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And be sure to use your HSA funds to pay for any and all qualified medical expenses.
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So that you get that triple tax benefit.
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If you use it right.
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an HSA can truly supercharge your medical savings and lower your healthcare costs.
Ralph:
Now there are some potential downside to HSA.
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So let's talk about some of the downside.
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Here's a few things to consider, to be eligible for an HSA.
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You must have a high deductible health plan.
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This means higher out-of-pocket costs before insurance kicks in.
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You make sure to have savings on hand for unexpected medical expenses.
Ralph:
Unfortunately, you got to look at that and that's part of the deal.
Ralph:
You got to have one of those high deductible plans.
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you may pay higher health plan premiums for a high deductible plan, which reduces some of the savings benefits.
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But here's the deal.
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Folks.
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You got to do the math to see if the tax savings are worth it.
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HSA's do come with administration fees, account fees or investment fees.
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So you've got to research carefully before choosing a provider.
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That's why I said a few minutes ago.
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Do some research and find a provider with the lowest fees.
Ralph:
Now here's the deal.
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Nonmedical withdrawals are taxed as income and incur a 20% penalty.
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Until age 65.
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So it's really important that you only use this for medical and that you maintain records and receipts for your expenses.
Ralph:
Now here's another thing.
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Contribution limits are much lower than 401k or IRA.
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So HSA's generally can't replace full retirement accounts.
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This is not the vehicle to completely change your retirement.
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But if you know, you're going to have a certain amount of.
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Medical expenses each year.
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This is a great way to make some of them tax deductible.
Ralph:
So with some savvy planning.
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These limitations can be overcome or minimized to leverage the benefits of an HSA.
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But you gotta make sure you educate yourself on the pros and cons.
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Listen to programs like mine.
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So you can decide if an HSA is really the best fit for you.
Ralph:
Before we wrap up, I want to remind all of our listeners to visit our podcast page.
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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.
Ralph:
We're building our calendar for the future.
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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.
Ralph:
People are really enjoying getting that daily emails so they know what Ralph's going to be talking about.
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And while you're there, you can also schedule a consultation, me to discuss your specific circumstances.
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And here's my ask for today.
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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.
Ralph:
They don't understand the benefits of these.
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So do me a favor, share this program and share our program in general with them.
Ralph:
So let's do a quick recap of what we've covered today.
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Here's the basics.
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Health savings accounts or HSA's allow tax-free savings and withdraws for medical expenses.
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When used with a high deductible health plan.
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That's the key.
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Contributions lower your taxable income.
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That's the benefit funds grow tax free.
Ralph:
Another great thing and withdrawals for medical expenses are completely tax-free.
Ralph:
So, like I said, as long as use them for medical expenses, there's no tax.
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To start an HSA.
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You need a qualifying high deductible health plan and to open an account with an approved HSA provider folks.
Ralph:
It's really not that complicated.
Ralph:
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.
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So most people are going with the high deductible plans in order to afford them.
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And you maximize your tax benefits by contributing up to the annual limits.
Ralph:
And investing your HSA funds.
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Here's the deal.
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Use your HSA strategically to pay for medical expenses, but be aware of limitations like high deductibles or fees.
Ralph:
That's why you got to research and decide who you're going to partner with.
Ralph:
Overall a health savings account can be a phenomenal way to save for current and future medical expenses.
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While slashing your tax bill.
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Hey, that's what we all want to do.
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Take full advantage of this option.
Ralph:
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.
Ralph:
Be sure to visit our website.
Ralph:
As I always say at askralphpodcast.com for the show notes and a full transcript of this episode.
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Please share this episode.
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As I said, with any friends or family who might benefit from learning about health savings accounts.
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The more we can spread financial literacy and education the better.
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And remember this Proverbs chapter 21 verse 20 says store up savings wisely for the future.
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Rather than living foolishly in the moment.
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Ask the Lord for discernment as you make decisions surrounding your health costs.
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And you're saving strategies.
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He desires to guide you into wise financial stewardship, but you've got to invest the time in understanding
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that's going to wrap it up for today.
Ralph:
I appreciate you joining me as I always say, stay financially savvy out there and God bless.
Ralph:
This is Ralph Estep signing off for now.
Ralph:
See you next time.
