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(00:02): Welcome to the LGBTQ midlife money podcast. I'm Stephanie Sammons and experienced certified financial planner and my goal is to help you take charge of your money and live your best midlife. Hello and welcome to episode 29 of the LGBTQ midlife money podcast. Today I'm going to be talking to you about the amazing [inaudible] manages of health savings accounts or HSA days. It's about that time of year to opt in or re-enroll for your employee benefits or if you're self employed. It's the time of year when you should be reviewing your health insurance and what you're going to put in place for next year 2020 so it's perfect timing to talk about the advantages of health savings accounts. These are one of my absolute favorite ways to save not only for your healthcare expenses but also for retirement. The reason I love health savings accounts is because they have a triple tax benefit.
(01:27): It's a triple play account, if you will. A health savings account is a health related savings account where contributions are tax deductible funds inside of an HSA grow tax free, and your distributions come out tax free as long as you use the money for qualified health expenses. Now the definition of qualified health expenses, it's pretty broad. These funds can cover a lot of different medical costs and health cost and doctor visits and these sorts of things. However, you can't use money from a health savings account to pay your health insurance premiums. So that's kind of important to know. You can use funds from a health savings account to go toward your health insurance deductible. And that's important because in order to be eligible for a health savings account, you need to be enrolled in a high deductible health insurance plan. So I'll talk about that in just a minute in more detail.
(02:50): So you get the triple tax savings benefit when you set up an HSA account. And if you don't use these funds in any one year, you can roll them over indefinitely so you don't lose it like a flexible savings account or an F S a which some people confuse the two with the flexible savings account money that you put into that account and you never end up using in that particular calendar year, you lose those funds. So a health savings account or HSA is probably the better way to go. Now if you leave your employer, an HSA account belongs to you, so you can also move it with you. It is a portable account. If you pull money out of your health savings account and you do not use it for healthcare expenses, not only will you pay ordinary income tax on those dollars because you haven't been taxed on those funds yet, but you will also incur a 20% penalty.
(04:11): So ideally this needs to be money that is dedicated to health expenses and you allow the funds to accumulate over time, assuming that you don't need to tap into them. Now when you turn 65 and you become eligible for Medicare, you can no longer put money into a health savings account. If you're 65 or older and you need to pull money out of your health savings account for something other than health care or medical expenses, you will still pay that ordinary income tax on those dollars since they haven't been taxed yet, but you will not have the 20% penalty as long as you're over 65 so that's important to remember. Now, who qualifies for a health savings account? Well, as I said earlier, you must have a high deductible health insurance plan. So for an individual your deductible needs to be 1350 $1,350 if you have a family that you are ensuring that deductible needs to be $2,700 a year or higher, so that may be different than the plan you are currently on.
(05:38): Your deductible may go up with a health savings account and that's important to think about. These accounts are best for those of you who are in good health and not planning on any major medical expenses. For the year because you want to be able to allow these dollars to grow. You don't necessarily want to tap in to a health savings account and that's a little bit of a mindset shift. You may be thinking, Oh great, I'll put money into this account and as I need it through the year for my different health expenses, maybe I'm going to have a medical procedure or something like that and I'll just pull it from there. Then those funds are not allowed to keep growing and accumulating, so if you're in pretty good health and you don't have any major medical expenses coming up and you can put money into a health savings account and let the funds grow and accumulate without having to really tap into it, that's the idea.
(06:43): If you have funds and savings outside of your health savings account that you can put towards your deductible throughout the year, that is also ideal, so letting your health savings account contributions accumulate and grow makes it like an IRA for healthcare. You can build up this nice little savings account to pay for healthcare expenses in retirement. If you've listened to any of my episodes in the past where I've talked about healthcare expenses, you may have heard me say that the average couple today that is 65 years old will have or need approximately $285,000 to fund healthcare expenses in retirement. That's a couple age 65 today, your health care costs in retirement could be around $285,000 now, of course, you're not gonna need all that money at one time and upfront that is over the length of your retirement. So ideally over many, many years, and this is based on research from fidelity investments, fidelity also says that a single man, the cost would be somewhere around 135,000 throughout retirement.
(08:23): And for a woman it's higher. It's 150,000 in healthcare costs throughout retirement because women are living longer than men. What's important to know about these numbers is they do not include longterm care expenses, which can also be very, very expensive. And there's a good chance that many of us will need some type of longterm care as we age, probably in our later years. For most of us. It also doesn't include ancillary costs like dental and vision and these sorts of things. That number $285,000 in healthcare costs for a 65 year old couple today is mainly your Medicare premiums in any supplemental Medigap or Medicare advantage plan that you may have as well as out of pocket costs, but like I said, don't let that number scare you too bad because it's not money that you're going to need all at once. It's just over time, over many years in retirement, hopefully.
(09:45): So how much money can you contribute to an HSA account? If you're an individual, you can put $3,500 a year into a health savings account, or if you are a family and you're funding your HSA plan for your entire family, the contribution limit is $7,000 there's also a catch up provision with HSA accounts. If you're 55 or older, you can add an additional $1,000 whether you are a single person or you are funding your HSA for a family. So that's an extra thousand that you can put away into your HSA. If you work for an employer who offers a health insurance plan with the HSA benefit, a lot of times employers will throw some money into your HSA for you. And what's important to know about that is that actually counts as part of your contribution so you can't go out and maximize your own contribution. Plus the employer contribution. You can't go over that $3,500 limit for an individual or a $7,000 limit for a family.
(11:07): If you're our self employee, your HSA contributions most likely will not come out of payroll unless you're set up as an entity that actually processes payroll. And so in most cases, these contributions are being made in a lump sum. That's it. In my experience, that's what I've seen with small business owners or they may contribute over time. But that contribution as a self employed person to your HSA has to be made by your tax filing deadline by April 15th of the following year so you can deduct your HSA contribution from your gross income on your tax return.
(11:56): Another great thing about HSA funds is that the money can be invested. Now it has to be with an HSA provider that actually allows investing in stocks, bonds and mutual funds and there are many of them out there. However, the HSA provider your employer is using may not offer investment options. You can still go outside of your employer and do your own at HSA account as long as you qualify as long as you signed up for that high deductible health insurance plan. But if it's not, if your contributions aren't coming out through payroll through your employer, then you're also going to be hit with the payroll tax. In other words, you save the payroll tax. If your employer makes the contribution for you, you're not going to be able to get that back if you go out side of the employer plan and contribute on your own.
(13:01): So the bottom line there is there's a little bit of a tax benefit to actually using the plan that your employer provides for you. Now balances can be invested in HSA accounts which gives them even more chance to grow tax free over time and there is no cap on what the total balance of your HSA account can be. It can grow and grow and grow and the longer you have to save and contribute to an HSA the better because you've got more time to allow those funds to accumulate. So that's really it. The nuts and bolts on a health savings account and it's something that I want you to look for as you prepare to re-enroll in your employee benefits or if you are self employed, it's something you want to consider setting up for yourself for maybe this year depending if you qualify or next year.
(14:06): Now there are some nuances. You want to make sure that you thoroughly look through the materials you are provided by your employer because depending on how long you've been employed and depending on how long you've been enrolled within the year in a high deductible health insurance plan, that will determine your eligibility. And that's just something to be careful about. If you started a new job in some time during the year and you haven't been there a full 12 months, that the contribution is prorated for that. So be careful about that if that's your situation. Okay, so why do I love HSA accounts? Because they have advantages and if you're in pretty good health, an HSA account will allow you to build an accumulate savings for health care costs in retirement or pre retirement. It's like a super IRA for healthcare. So check it out if you don't have one, check out the high deductible health insurance plan, see if it fits your needs. And you might consider using a health savings account to start putting money away for healthcare expenses in retirement.
(15:44): this show is for informational and educational purposes. Please do not consider any of the content as personalized financial investment tax or legal
(16:04): [inaudible]. [inaudible].
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