The Savings Strategy Most Americans Are Missing Out On
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IGK, how much an MRI costs, IRL, but IMHO, an HSA is a good way to pay. I love a good abbreviation, FWIW. Stop it. Get some help. What's up, guys? I'm George Camel, and today we're talking about one of my favorite three-letter acronyms, HSA, and it stands for Health Savings Account. And it's a special savings account that can help you pay for medical expenses tax-free. Think of it like an emergency fund just for medical costs. That's the TLDR, LOL. Stop!

Am I actually laughing out loud? No. But no one does. Hey, when your buddy texts you LOL, they didn't laugh at your joke. They're just trying to make you feel... But an HSA is far from your standard run-of-the-mill savings account. It is so much more. In fact, when you really look at it, the perks of an HSA are almost TGTBT. Okay, I made that one up. Too good to be true. But let's make it a thing, huh? No! God, please, no!

Some people are even using HSAs as an extra retirement account, which we'll get to later. But a recent study shows that most Americans are missing out on HSA savings. SMH. I hate myself. I want you all to know that. I hate me more than you hate me. So what's so great about HSAs? And how do you get one? And how do you take advantage of all the benefits?

I am glad you hypothetically asked. Because in today's video, we're doing a deep dive on HSAs so you can understand how they work and how you can use this magical account to not only pay for medical expenses, but also to boost your retirement savings. HSA FTW. But first, I see why am I. Make sure you like and subscribe to this channel. And BTW, don't forget to share this with your BFF, especially if they've had to sell a horse to pay for medical bills. And that is the loneliest feeling in the world.

Okay, let's start with eligibility. Not everyone can just go open a health savings account willy-nilly. You've got to meet some basic criteria. So here's what must be true for you to open an HSA. You're at least 18 years old and no one can claim you as a dependent on their tax return. You're not enrolled in Medicare and you're enrolled in a qualified high deductible health plan. And here's why. A higher deductible means you'll need to pay more out of pocket before your insurance kicks in. But in exchange, you get lower monthly premiums and the option to put money into an HSA to save up for those medical costs.

So if you meet all of the criteria, congratulations, you can now open an HSA. So how does it work? Well, it starts off like a normal savings account where you can set aside money. And like other savings accounts, your money can earn a teeny bit of interest while it sits there waiting on the hospital bill for your next cheese grater mishap. But once you reach a certain threshold balance, you can use your HSA as an investment account, much like an IRA. That means you can buy mutual funds inside of that account and watch the power of compound interest grow your money into something even more beautiful, more money.

Now, some HSAs even let you invest the money right away, which is fantastic. But the sad thing is a lot of people never even choose to start investing the funds in their HSA. And according to a study from the Employee Benefit Research Institute, only 12% of HSA account holders invested in assets other than cash, which is a cry in shame because if you don't choose to invest that money, your HSA savings can't even keep up with inflation on top of missing out on long-term capital gains.

So investing your HSA funds and letting that money grow over the long haul can help you build up a nice chunk of savings to cover medical expenses during your retirement years. And here's the best part about HSAs. They're what we call triple tax advantaged. That's right. Not one, not two, but a whopping three tax advantages. It's the best triple threat known to man right behind Hugh Jackman. I mean, the guy can act, he can sing, he can dance, and I bet he has an HSA to boot. Fantastic.

Hey, enough Hugh Jackman clips. What did we say? But tone it down. So let's talk triple tax benefits of the HSA. First tax benefit, contributions are tax-free. So if you have a job, you're probably well aware that Uncle Sam takes a big old cut of every paycheck. It's called income tax.

One of the best perks of a health savings account is that you don't have to pay income tax on the money that you put into your HSA. And that can happen in a couple of ways. The first is through a pre-tax payroll deduction. This means your employer drops whatever HSA funds you've earmarked to come right out of your paycheck into your HSA account. Now, that money isn't counted as income, so it can't be taxed. Cha-ching! Take that, IRS. Or more accurately, don't take that. Yeah, how do you like not taking that? Oh, oh, oh, oh, oh, oh, oh.

Now, some companies will even match your HSA contributions up to a certain amount, much like they do with 401ks, which is fantastic because that is free, untaxed money. And my employer, Ramsey Solutions, happens to offer that match. Thanks, HR. They don't get thanked a lot, okay? Now, if you don't get your insurance through your employer or your employer doesn't route funds to your HSA for you, not a problem. In this case, you would just make contributions to your HSA on your own. And then come tax time, you can claim those contributions as tax deductions so they aren't counted taxable.

And if you're self-employed, you could just contribute pre-tax and it won't count toward your taxable income. Unless you live in New Jersey and California, you dingleberries for some reason have to pay state income tax on your HSA contributions for some stupid reason. Sorry, I don't make the rules. Hey, write a letter to your congressperson, okay? They don't get enough HSA hate mail and it's time. Now keep in mind, there are limits to how much money you can contribute to your HSA and that limit can change from year to year.

Lucky for you, we've got an article all about HSAs that stays up to date, and I'll link that article for you below. Go check it out. Tax benefit number two, investment growth is tax-free. That's right. The money in your HSA grows tax-free. Now remember, an HSA is a health savings account, so it acts like a savings account and earns interest. But unlike a regular savings account where interest earned will be counted as taxable income, your HSA contributions can grow without the tax hit.

Except, of course, if you live in New Jersey or California. Your HSA earnings are considered taxable income. You chose to live there. It's your fault. You can move. No one's who's stopping you. You don't like your family that much? Get out of there. Don't come to Tennessee. We're full in Tennessee. Occupado. Keep moving. Go on, go on, get! Yeah!

Tax benefit number three. Withdrawals are tax-free or qualified medical expenses. So with an HSA, you're setting aside money for medical expenses. So whether it's this year or 10 years from now, you can take that money out tax-free for qualified medical expenses. Now, my HSA gives me a debit card so I can easily use the funds in my account to pay for those qualified medical expenses at the doctor's office, online, or at the pharmacy.

So what exactly counts as a qualified medical expense? Well, you might be surprised. It's a lot more than just hospital bills and hemorrhoid cream. So much more, you could almost write a song about it. ♪ Hopped out the car at the CVS ♪ ♪ Need some sunscreen for my skin ♪ ♪ Also need a kit to remove earwax ♪ ♪ And some medication ♪

♪ Walked in the door, there's some crutches for a good price ♪ ♪ I'll take a pair and some shampoo for my head lice ♪ ♪ Heating pads are on sale ♪ ♪ Fungus treatment for my toenail ♪ ♪ My tummy's turning and I'm feeling kind of queasy ♪ ♪ Grab some Tums and keeps it breezy ♪ ♪ That's when the pharmacist came with the Sudafed ♪ ♪ And the cashier's name was Sean ♪

And the cashier's name was Sean. And the cashier's name was Sean. So I put my card out and said, hang on. Forgot to get nasal spray. Throw in some cough drops, yeah. Wipes for my glasses, yeah. And then I put my card out and swiped it real strong. You know it's how I'm gonna pay. Hey, yeah, yeah, yeah. I just bought it with my HSA.

Yeah, yeah, yeah, yeah. I just bought it with my HSA. Check with your HSA provider for a complete list of qualified medical expenses.

Anyway, on top of the triple tax advantage, there's something else that makes HSAs really attractive. Once you turn 65, you can withdraw funds from your HSA for whatever you'd like with no penalty, not just qualified medical expenses. And at that point, it starts to function sort of like a traditional IRA. Now, caveat, you'll have to pay taxes on those funds that you take out if they're not qualified medical expenses, just like you would with a traditional IRA in retirement. But it's still nice to be able to access that money that's been growing for years without penalties.

So consider it like a bonus retirement account. Now another side note there, you won't be able to contribute to your HSA after you turn 65, but don't worry, you can still use whatever money is in there tax-free for medical expenses. So by now you can see why I have an undying burning passion for the HSA.

It is so much more than just a piggy bank for medical expenses. With tax-free contributions and tax-free growth, it can be an incredible tool to help you save and invest for retirement along with your good old trusty 401k and Roth IRA. Oh, and you might be wondering, what about that thing, flexible spending accounts or FSAs? Well, they're similar to HSAs in the sense that they also help you save up for medical expenses without paying taxes on the money you put into the account. But there are also some major differences.

You see, with flexible spending accounts, the money that's in there doesn't roll over year to year. So if you don't use it, you lose it. Turns out flexible spending accounts, not so flexible.

I'll save all the details of flexible spending accounts for another juicy video. But long story short, if I had my way, I would go with an HSA over an FSA any day. So is an HSA right for everyone? Probably not. Remember, you can only have an HSA if you have a high deductible health plan or HDHP. And depending on your situation, that may not be the best type of coverage for you and your family. So take a look at your medical history and do a little math to help you decide on the right type of coverage. And if you do choose an HDHP, make sure you take advantage of that HSA connected to it.

All right. A lot of info there. Quick recap for you. So if you have a high deductible health plan, an HSA is a great way to help you pay for medical expenses. And it covers a whole lot. It's triple tax advantage because you're not taxed when you put money in. The money in there grows tax free. And you're not taxed when you take money out to pay for qualified medical expenses. And once you turn 65, it basically functions like a retirement account and you can take money out for whatever you'd like. And at that point, withdrawals are still tax free for medical expenses, but not for other things.

I hope this video was helpful for you, and if you want to get started saving and investing with an HSA, there are a couple of ways to do it. If you're employed, ask someone from your HR team how you can start contributing to an HSA. And if you're self-employed, make sure your health plan is HSA eligible, and then use the link in the description below to get connected with a Ramsey-trusted pro in your area who can help you open an HSA. As always, be sure to subscribe to this channel, like this video, and share this video with someone who's still using after-tax dollars to pay for their hemorrhoid cream like a schmuck.

Thanks for watching, see you next time.