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The Good, the Bad, and the Ugly of Health Savings Accounts | The Truth · Well Advised Wealth

• 0:00
  SPEAKER_01: Nobody uses this account correctly.
• 0:04
  SPEAKER_01: It's something that most people have.
• 0:06
  SPEAKER_01: It's called My Money Goes in tax-free, it grows tax-free, and it comes out tax-free too.
• 0:13
  SPEAKER_01: You're leaving one of the best deals in the entire tax code right on the table.
• 0:18
  SPEAKER_01: That means the money sitting in that account keeps growing completely tax-free the entire time, and you still get a tax-free withdrawal whenever you actually want the cash.
• 0:28
  SPEAKER_01: Pull$10,000 out on the wrong reason.
• 0:30
  SPEAKER_01: That's an extra two grand gone before taxes even hit.
• 0:34
  SPEAKER_01: Welcome.
• 0:35
  SPEAKER_01: This is the Well Advised Wealth Podcast.
• 0:37
  SPEAKER_01: I'm your host, Justin Chastain, certified financial planner, and every week I help successful business owners and families create wealth that last.
• 0:47
  SPEAKER_01: What we're going to talk about today is something that most people have, but almost nobody uses this account correctly.
• 0:57
  SPEAKER_01: It's called a health savings account.
• 0:59
  SPEAKER_01: And if you've only ever thought of it as a place to keep money, either for copays, prescriptions, you're leaving one of the best deals in the entire tax code sitting right on the table.
• 1:12
  SPEAKER_01: Today I am going to cover the good, the bad, and the ugly of the health savings account, including a simple trick that almost nobody uses and one mistake that can quietly cost people thousands of dollars without any warning.
• 1:27
  SPEAKER_01: Let's get into it.
• 1:29
  SPEAKER_01: Why does this matter?
• 1:30
  SPEAKER_01: Why are health savings accounts something that nobody really talks about, nobody really understands?
• 1:37
  SPEAKER_01: Well, some of it is it's a new opportunity.
• 1:40
  SPEAKER_01: But the other thing is, as I always say in retirement planning, we can't get mad at taxes.
• 1:45
  SPEAKER_01: We need to know how to play the game within the tax system.
• 1:47
  SPEAKER_01: And there's one account that beats every other in the tax code.
• 1:51
  SPEAKER_01: My money goes in tax-free, it grows tax-free, and it comes out tax-free too, as long as it's a medical expense.
• 1:58
  SPEAKER_01: That's the health savings account.
• 2:00
  SPEAKER_01: Some people ask me, well, Justin, what is a qualified medical expense?
• 2:05
  SPEAKER_01: Could I use it to pay for a left-handed cigarette or the devil's lettuce, as we say down here in the South?
• 2:11
  SPEAKER_01: And I would say, well, no, but there is a list of qualified medical expenses, and that's determined by the IRS.
• 2:19
  SPEAKER_01: Not me.
• 2:19
  SPEAKER_01: If it was me, I would let you put the devil's lettuce on there, right?
• 2:22
  SPEAKER_01: Because, hey, isn't protose good for you?
• 2:25
  SPEAKER_01: But let's get back on track.
• 2:27
  SPEAKER_01: A traditional IRA gives you two of those three benefits.
• 2:30
  SPEAKER_01: A Roth gives you two of those three benefits, but the HSA is the only account that gets all three at once.
• 2:38
  SPEAKER_01: We call this the tax trifecta.
• 2:41
  SPEAKER_01: Most people only have to qualify for one thing to get this benefit.
• 2:45
  SPEAKER_01: It's a high deductible health plan.
• 2:47
  SPEAKER_01: And that one requirement is where most of the good and the bad and the ugly is going to come from in this episode.
• 2:54
  SPEAKER_01: So since I'm a glass half full kind of person, let's get into this.
• 2:59
  SPEAKER_01: Here's the good.
• 3:00
  SPEAKER_01: Number one, money in, money out, all tax free.
• 3:03
  SPEAKER_01: And there's a trick that stretches it even further.
• 3:06
  SPEAKER_01: You put money in without paying tax on it.
• 3:09
  SPEAKER_01: It grows without being taxed.
• 3:11
  SPEAKER_01: And you spend it on medical costs without paying a tax on it either.
• 3:14
  SPEAKER_01: No other account does all three of those.
• 3:17
  SPEAKER_01: But here's the trick.
• 3:18
  SPEAKER_01: Almost nobody uses this one simple ability of the HSA.
• 3:23
  SPEAKER_01: Pay your medical bills out of pocket today from cash if you can afford to do so and just keep the receipt.
• 3:29
  SPEAKER_01: In a shoebox, if you want to, in a physical shoebox.
• 3:32
  SPEAKER_01: You don't have to reimburse yourself right away from the health savings account.
• 3:35
  SPEAKER_01: You can reimburse yourself from the HSA or Health Savings account for that bill at any time in the future.
• 3:41
  SPEAKER_01: Next year, 10 years from now, it doesn't matter as long as you keep the receipt.
• 3:46
  SPEAKER_01: That means the money sitting in that account keeps growing completely tax-free the entire time, and you still get a tax-free withdrawal whenever you actually want the cash.
• 3:55
  SPEAKER_01: Some advisors call this the shoebox method.
• 3:58
  SPEAKER_01: Keep a shoebox, a real one, a folder on your phone with every medical receipt in it, and allow your HSA to compound untouched in the background.
• 4:06
  SPEAKER_01: It's simple and nobody actually does it.
• 4:10
  SPEAKER_01: Number two, under the good.
• 4:12
  SPEAKER_01: After 65, it's basically a second retirement account and you can invest like one.
• 4:17
  SPEAKER_01: After you turn 65, you can take money out for anything, not just medical costs.
• 4:22
  SPEAKER_01: You pay regular income tax on it the same way as you do a 401k withdrawal.
• 4:27
  SPEAKER_01: And if you spend it on medical bills, that part is still completely tax free, no matter how old you are.
• 4:32
  SPEAKER_01: So the worst case scenario, it behaves like a traditional IRA.
• 4:36
  SPEAKER_01: Best case is it behaves like nothing else in the tax code.
• 4:40
  SPEAKER_01: Most people don't realize the account is portable and can be invested.
• 4:43
  SPEAKER_01: It doesn't disappear when you change jobs the way that some employer benefit does.
• 4:48
  SPEAKER_01: It's yours.
• 4:49
  SPEAKER_01: And most HSA providers let you invest the balance once you're above a small cash cushion in the same kind of index funds or mutual funds that you're in in an IRA or your 401k.
• 4:59
  SPEAKER_01: So instead of just letting that money sit there earning almost nothing, invest it.
• 5:03
  SPEAKER_01: Number three, it pays your Medicare premiums.
• 5:05
  SPEAKER_01: This is called the Medicare opportunity.
• 5:07
  SPEAKER_01: Once you're on Medicare, you can use the HSA money tax-free to pay your Medicare B or D premium.
• 5:13
  SPEAKER_01: The one thing that it won't pay for is a supplement.
• 5:15
  SPEAKER_01: Every other Medicare premium qualifies.
• 5:18
  SPEAKER_01: That one specifically doesn't.
• 5:19
  SPEAKER_01: It's an easy thing to assume it's covered when it isn't.
• 5:22
  SPEAKER_01: Number four, if your spouse is on Medicare, you can still fund the family account.
• 5:26
  SPEAKER_01: So I'm going to say this plainly, just like a good hot dog.
• 5:30
  SPEAKER_01: Plain, nothing on it.
• 5:31
  SPEAKER_01: No ketchup, no mustard.
• 5:32
  SPEAKER_01: Your spouse being on Medicare does not shut down your HSA.
• 5:36
  SPEAKER_01: As long as you're still under a family plan and not on Medicare yourself, you can keep contributing for the both of you up to the full family amount.
• 5:43
  SPEAKER_01: Every year, your spouse's Medicare enrollment does not take that away from you.
• 5:48
  SPEAKER_01: So that sounds really good, right?
• 5:49
  SPEAKER_01: But there's also a bad.
• 5:51
  SPEAKER_01: Remember, this is a tool.
• 5:52
  SPEAKER_01: There's a good, a bad, and the ugly to everything.
• 5:54
  SPEAKER_01: So let's get into the bad.
• 5:55
  SPEAKER_01: Number one, you need a specific kind of help plan to qualify.
• 5:58
  SPEAKER_01: It has to be high deductible.
• 6:00
  SPEAKER_01: For 2026, that means at least a deductible of$1,700 for an individual,$3,400 for a family deductible.
• 6:06
  SPEAKER_01: If your employer's insurance doesn't qualify, you can't open or fund an HSA, no matter how much you'd like to.
• 6:12
  SPEAKER_01: Number two, the yearly amount is small compared to a$401.
• 6:16
  SPEAKER_01: In 2026, as an individual, you can put in$4,400 for yourself or$8,750 for a family.
• 6:22
  SPEAKER_01: Plus, if you're over$55, you get a$1,000 catch up provision yearly.
• 6:26
  SPEAKER_01: A$401 from an employee your contribution up to$24,500.
• 6:32
  SPEAKER_01: The HSA is a nice extra bucket.
• 6:34
  SPEAKER_01: It's not going to replace your retirement savings on its own.
• 6:37
  SPEAKER_01: And most people never even max it out.
• 6:39
  SPEAKER_01: Number three, take money out for the wrong reason, it's going to cost you double.
• 6:42
  SPEAKER_01: So if we spend the HSA money on something that isn't a medical expense before you turn 65 and you owe regular income tax on it, plus a 20% penalty.
• 6:53
  SPEAKER_01: That's a double hit if we look at it from an IRA that only charges 10% for the same exact mistake.
• 6:59
  SPEAKER_01: So if we were to pull$10,000 out on the wrong reason, that's an extra two grand gone before taxes even hit.
• 7:06
  SPEAKER_01: Number four, whether you can keep it past 65 depends on one number.
• 7:10
  SPEAKER_01: Your employer size.
• 7:11
  SPEAKER_01: If you or your spouse work for a company with 20 or more employees, you can put off signing up for Medicare and keep contributing to the health savings account past 65.
• 7:20
  SPEAKER_01: If you work somewhere smaller and Medicare takes over automatically at 65, whether that's what you wanted or not.
• 7:26
  SPEAKER_01: And this rule runs through a spouse's job just as much as it does your own.
• 7:30
  SPEAKER_01: If your spouse is still actively working for a large employer and you're on their plan, that alone is enough to qualify, even if you're not the one working.
• 7:39
  SPEAKER_01: So how do you get your employer number?
• 7:41
  SPEAKER_01: Just go around and randomly count, or just tell your company you would like to do a secret Santa and you just want to know how many employees you have if they ever get nosy.
• 7:49
  SPEAKER_01: Kidding with that, you can ask HR.
• 7:52
  SPEAKER_01: They should and be open to tell you this because a lot of people are red zone retirement planning, just like you probably are yourself.
• 8:00
  SPEAKER_01: Let's get into the ugly though.
• 8:02
  SPEAKER_01: Number one, Medicare can reach back six months and undo money you've already put in.
• 8:07
  SPEAKER_01: Ah, the common look back as we are finding an IRMA, income-related monthly adjusted amounts.
• 8:13
  SPEAKER_01: When we're planning for retirement, the IRS really loves the rear view mirror.
• 8:18
  SPEAKER_01: So when you finally sign up for Medicare, your coverage can be backdated six months.
• 8:22
  SPEAKER_01: Any health savings account money you contributed during those backdated months instantly becomes a mistake.
• 8:28
  SPEAKER_01: The IRS calls excess contribution.
• 8:30
  SPEAKER_01: And it gets taxed 6% every year until you fix it.
• 8:33
  SPEAKER_01: So someone contributing$450 a month who gets backdated six months just created a$2,700 excess contribution without doing anything willingly or knowingly wrong at that time.
• 8:45
  SPEAKER_01: Number two, you cannot collect Social Security and Dodge Medicare at the same time.
• 8:49
  SPEAKER_01: Here's the trap.
• 8:50
  SPEAKER_01: If you're already collecting Social Security, once you turn 65, you get put on Medicare A automatically.
• 8:57
  SPEAKER_01: That's for your hospital.
• 8:58
  SPEAKER_01: And you can't say no.
• 8:59
  SPEAKER_01: So if you're using the large employer rule to delay Medicare and you're keeping your HSA alive, you also have to delay claiming Social Security or the whole plan falls apart.
• 9:08
  SPEAKER_01: Number three, lose their receipt, lose the tax break.
• 9:12
  SPEAKER_01: If you're ever asked to prove a withdrawal was for a real medical expense, and you can't, the IRS taxes it as regular income plus a 20% penalty if you're under 65.
• 9:24
  SPEAKER_01: So remember that the shoebox method from that good portion we just talked about, it only works if the shoebox actually still has receipts in the years later.
• 9:34
  SPEAKER_01: If you cannot provide a receipt, no tax-free withdrawal.
• 9:38
  SPEAKER_01: Number four, if you leave it to the wrong person and it becomes one giant bill.
• 9:43
  SPEAKER_01: So if we leave our HSA to your spouse, your girlfriend might get mad.
• 9:47
  SPEAKER_01: Hey, another bad joke.
• 9:49
  SPEAKER_01: But if you leave your HSA to your spouse, nothing changes.
• 9:52
  SPEAKER_01: It just becomes their account tax-free.
• 9:54
  SPEAKER_01: If you leave it to anyone else, let's say like an adult child or a neighbor if you really like them, that entire balance becomes taxable to them all in one year.
• 10:04
  SPEAKER_01: There's no spreading it out.
• 10:05
  SPEAKER_01: So a$50,000 HSA left to an adult child that probably could be in a high tax bracket if they're working could mean tens of thousands of dollars in tax due at their very next tax filing, which is generally in April of the next year.
• 10:20
  SPEAKER_01: That is the exact opposite of how an inherited IRA works.
• 10:23
  SPEAKER_01: And remember, we talked about that in the last episode.
• 10:26
  SPEAKER_01: A spousal IRA gets benefits just like we talked about here.
• 10:30
  SPEAKER_01: Leave it to them.
• 10:31
  SPEAKER_01: They can take it as their own.
• 10:32
  SPEAKER_01: But inherited IRA, I can spread it out over a 10-year period.
• 10:36
  SPEAKER_01: I don't get that benefit in a health savings account.
• 10:39
  SPEAKER_01: Now, a lot of people will say, Justin, why is that?
• 10:41
  SPEAKER_01: Well, let's think about the benefit.
• 10:43
  SPEAKER_01: This is the only account that gets the tax trifecta where I can put in money tax-free, pre-tax, I can allow the money to grow tax-free, and I can withdraw it tax-free.
• 10:53
  SPEAKER_01: I'm not getting those benefits in IRA.
• 10:55
  SPEAKER_01: I'm only getting two out of those three benefits.
• 10:57
  SPEAKER_01: So the IRS looks at this a little bit differently.
• 10:59
  SPEAKER_01: But again, don't hate the player, hate the game.
• 11:03
  SPEAKER_01: I think that's what the new kids are saying.
• 11:05
  SPEAKER_01: So it's not get mad at how it's taxed.
• 11:08
  SPEAKER_01: We just have to understand how the tax system works and work this into our financial plan.
• 11:15
  SPEAKER_01: So, what can we do about it?
• 11:16
  SPEAKER_01: Here's five easy steps to really just thinking about what to do next.
• 11:21
  SPEAKER_01: Number one, if your health savings account is just sitting in cash, move it to investments.
• 11:25
  SPEAKER_01: Don't treat this like a checking account for co-pays.
• 11:29
  SPEAKER_01: Treat it like a supplemental retirement account.
• 11:32
  SPEAKER_01: Number two, start the shoebox method today.
• 11:34
  SPEAKER_01: Keep every medical receipt forever.
• 11:37
  SPEAKER_01: If nothing else, just for sentimental values.
• 11:39
  SPEAKER_01: Who doesn't like saying that they've had a suspicious mole removed and something to share with your grandkids?
• 11:45
  SPEAKER_01: But anything you pay out of pocket now can be reimbursed for yourself tax-free years from now.
• 11:50
  SPEAKER_01: Let's use the time value of money to our advantage.
• 11:53
  SPEAKER_01: Number three, stop health savings account contributions at least six months before you plan to sign up for Medicare or claim Social Security.
• 12:01
  SPEAKER_01: Talk to your advisor about the exact timing first.
• 12:04
  SPEAKER_01: Number four, if you're working past 65, find out your employer's headcount.
• 12:09
  SPEAKER_01: And as I said, do any mini money mo or just randomly go around and say, do you know how many employees we have working here, Ty?
• 12:16
  SPEAKER_01: No, go to HR and ask.
• 12:17
  SPEAKER_01: They'll probably be willingful to help.
• 12:20
  SPEAKER_01: But if you have 20 or more, that's where you're gonna be able to still stay on their plan.
• 12:24
  SPEAKER_01: If not, we have to adjust.
• 12:26
  SPEAKER_01: Okay.
• 12:26
  SPEAKER_01: And same thing, double check with your spouses because you can get on their insurance as well if they have 20 or more.
• 12:32
  SPEAKER_01: Number five, check your health savings beneficiary today.
• 12:35
  SPEAKER_01: If you name your spouse, if you're married, which makes sense, they can carry it over as their own.
• 12:41
  SPEAKER_01: But if you're gonna name somebody else, you need to be speaking with your advisor about that before it happens, not after.
• 12:48
  SPEAKER_01: Let's get into our weekly wealth minute and what's really the biggest takeaway from this.
• 12:52
  SPEAKER_01: And what do I see most people doing that they don't intentionally do?
• 12:56
  SPEAKER_01: If you have a health savings account right now, go check one thing this week.
• 13:00
  SPEAKER_01: Is the money actually invested or is it just sitting in cash?
• 13:03
  SPEAKER_01: Most people never move it.
• 13:05
  SPEAKER_01: And that's the single biggest reason this account underperforms its own potential.
• 13:10
  SPEAKER_01: It's the only account in the entire tax code that goes in tax-free, grows tax-free, and is tax-free coming out.
• 13:17
  SPEAKER_01: But only if you treat it like a long-term account that it's built to be, instead of just a glorified checking account for doctor's visits.
• 13:24
  SPEAKER_01: Also, if you're a solo employer, you can absolutely have a high deductible plan, but you're going to want to talk to a healthcare insurance specialist.
• 13:33
  SPEAKER_01: And this can be a tax advantage even for a solo single employer.
• 13:37
  SPEAKER_01: Let's also not forget what's the biggest opportunity for bankruptcy in the United States as we see right now?
• 13:43
  SPEAKER_01: Healthcare costs.
• 13:44
  SPEAKER_01: Don't overlook the risk management piece of having health insurance, but let's use this HSA to also be a supplemental retirement plan.
• 13:55
  SPEAKER_00: Parallel Financial LLC is a member firm of the Fiduciary Alliance, or LLC, which is a registered investment advisor.
• 14:04
  SPEAKER_00: More information about Parallel Financial can be found in Form ADV Part 2, which is available upon request.
• 14:12
  SPEAKER_00: This website is for informational purposes only and should not be construed as investment advice or recommendation to buy or sell any security or other investment or to undertake any investment strategy.
• 14:24
  SPEAKER_00: Opinions expressed herein are solely those of Parallel Financial LLC unless otherwise specifically cited.
• 14:32
  SPEAKER_00: Material presented is believed to be from reliable sources, and no representations are made by our firm as to another party's informational accuracy or completeness.
• 14:43
  SPEAKER_00: All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation.