- Look at this map of the
US and find your state. Then look at the percentage
attached to your state. This is the percent of the
population ages 18 and over with a health savings account. Utah is crushing it with 25% of people, which makes me think that they
know something about an HSA that you're about to
discover in this video. You see this bill for $469? I recently received it for
12 months' worth of contacts. Now, on the surface, you'd think that it was
basically a deduction from my overall wealth, since it is money that's
coming out of my pocket. But as someone who currently
has a health savings account, I look at it as $3,577 in my pocket. Let me explain. If you don't have an HSA, then you are missing out on
this massive opportunity. And if you do have an HSA, then you could technically
still be missing out on this same opportunity, because you don't know how to
maximize this type of account. A report in 2020 found
that only 6% of people with health savings accounts are doing what I'm about
to show you in this video, which is a big problem. So listen up. In this video, I'm going to lay out
everything you need to know about a health savings account, so you can hopefully one day turn it into anywhere
between $362,000 and $731,000 of tax-free money. This one is absolutely packed
with valuable information, so make sure that you watch
it until the very end, because it's important to
understand the ins and outs so you don't make any mistakes. If you have any questions that
I don't answer in this video, then leave them in the comments below and I will do my best to answer as many of them as I can get to. An HSA is a savings account that's attached to a
health insurance plan, where you can contribute pre-tax money, then withdraw it for the
purpose of medical expenses. Your initial thought is
probably the same one that I had years ago. - [Distorted Voice] Wait, wait, wait. You're telling me that I
can only spend this money on medical expenses. With that kind of restriction, this sounds like the dumbest account ever. - Oh, my friends just
wait for me to show you why this is probably my
favorite money-related account. An HSA is completely
different from an FSA. A lot of people confuse the two, so I wanted to call that out right away. To be able to contribute to
a health savings account, you'll need to be enrolled into a high-deductible health plan through either your
employer or on your own. Now, later in the video, I'll
show you how to make sure that you are picking
the correct health plan. There isn't an income limit with an HSA, so anyone can contribute to one, regardless of how much money you make, as long as you are enrolled in a high-deductible health plan. According to the IRS, starting in 2023, an individual with self-only coverage can contribute up to $3,850. For an individual with family coverage under a high-deductible health plan, you can contribute up to $7,750. If you are 55 or older, you can contribute an
additional $1,000 per year on top of the $3,850, or $7,750. Two things to note about
HSA contribution limits. These numbers aren't all-or-nothing. So if you cannot afford to
contribute the maximum amount, then you can still contribute
as much as you want, as long as you don't exceed the numbers that I just mentioned. Sometimes employers will
contribute money towards your HSA as an added benefit, just like bonuses, vacation time, sick
time, and a 401(k) match. If your employer does this, then the amount that
they contribute for you will count towards the
$3,850 or $7,750 maximum. Either way, this is a valuable benefit that you should take advantage
of, if you are able to. Before I share with you my HSA hacks, how to open an account, other
tips, and mistakes to avoid, we need to cover how to supercharge your health savings account, so you can start to get a clearer picture of why it's so amazing. The average person looks at an HSA and thinks of it as a savings
account for medical expenses in the near-term, hence the
name health savings account. This individual deposits
money into the account and when a medical expense pops up, they pay for it with money in the account. There is nothing wrong with doing this, if that's your preferred
use of the account. But if you want to supercharge your HSA, then instead of looking at it
as a health savings account, I want you to treat it as a
health investment account, specifically a retirement account such as a 401(k), 403(b), 457 or IRA, but, even better. The even better part has to
do with a triple tax savings that I'll cover in just a minute. You'd want to go into this whole thing with the mindset that this
health investment account is going to be earmarked for
your future medical expenses when you are much older. I like to think of it in two ways. Number one, it's a little
health insurance policy where I get to keep 100% of the money. And number two, as a way to
pre-save for medical expenses that we are all going to face as we age. Because if you think
about it, in retirement, you are going to be paying
for medical expenses out of one of the other
retirement accounts that you have. So why not just have a health-specific one that is optimized for that use case? Before I go through the
three different things that you can do once money
is deposited into your HSA, please consider helping to support my beautiful dog and
hiking partner, Molly, as well as this channel, by hitting that thumbs-up button, tapping that subscribe
button and notification bell. Here are the three things that
you can do with the money. Number one, you can deposit that money, then let it sit there, where it'll slowly lose
value to inflation. Number two, you can use the
money on medical expenses as they come up, doctor's office visits, prescriptions, new pair of contacts, or whatever. The money is still going to
get devalued from inflation, but at least you are using a
portion of it along the way. Or number three, you could
invest some or all of the money that you have in your
health savings account, and not withdraw any of the money for current medical expenses. Yes, you have the ability to
invest money within your HSA. You're smart and most likely thinking I sound like a crazy person right now. So you're probably
wondering how in the world you are going to pay for medical expenses if you don't withdraw funds from an HSA. Since your goal is to
avoid touching that money, you'd want to pay for any
current medical expenses out-of-pocket. For example, if you have
a $300 medical bill, then you'd pay for it
out of your own pocket so that you don't have to
touch the $300 that's invested. This way, it can have the opportunity to 7X into $2,100 in 30 years. So while you are technically paying $300 out-of-pocket today, you're going to get paid
back that initial $300 plus the $1,800 investment growth, because you left the money invested so it had more time to compound. Think of the $300
out-of-pocket as an investment, and not an expense. Just like the example that I gave at the beginning of this video, where I said that my
$469 expense for contacts is actually an investment. We can easily compare two
people who both have an HSA but treat the account
completely differently. Both people max out their HSA at $3,850 every year for 30 years. Now keep in mind that a family can contribute a
little more than double that, so you can take all of the
numbers that I go through and multiply by two. Just to make it easy to understand, let's assume neither of them spend any money on medical
expenses over that time period. Stan the Saver chooses to let his money just sit there in the account. Now after 30 years, he
has $115,500 in his HSA. Ian the Investor chooses
to invest all of his money, puts it into safer index funds, and assumes a 7% annual return. Some people are going to get
mad that I am assuming 7%. So if you're one of those
people who are super angry about that, and "Jared,
why are you doing this?", then go ahead and choose
whatever return you want and do the math on your own, 'cause I can't do it
for every single number. In 30 years, Ian the Investor's
health savings account has grown to $363,862. Once again, I'm fully aware that my audience is extremely intelligent, so I know you're questioning the reality of spending $0 on medical
expenses over that time period. With this in mind, let's run the scenario for if they both spend all
of the contribution amount on medical expenses over that time period. Stan the Saver deposits
$115,500 over 30 years and spends the exact same amount, which leaves his account
with $0 after 30 years. Ian the Investor keeps all
of his $115,500 invested and pays $115,500 out-of-pocket
over those 30 years, so that his HSA can grow to $363,862. Now, since Ian has paid
that $115,000 out-of-pocket, we need to deduct that amount from the $363,000 HSA balance, which tells us that the investing method has benefited him by $248,362. Don't worry, big-brained people, we're gonna address the issue right now. It is not a completely
fair comparison yet. Because if we assume that Ian the Investor has $115,000 in cash lying around to pay for medical expenses out-of-pocket over 30 years, we have to assume that Stan the Saver also has $115,000 in cash lying around while he
pays for his $115,000 worth of medical expenses from his HSA. We need to be fair, so let's address this. Because of that, the real question is what will Stan do with that
extra $115,000 in cash? Now, ideally, we would like to assume that he'd invest that money. There's two glaring problems with this line of thinking though. Number one, we're assuming that Stan has his financial
behaviors under control enough to invest $320 per month into
another investment account for 30 years. I don't know you, and I
definitely don't know Stan. But I can tell you based on the many years I've studied behavioral
finance and human nature that if most people have
this extra cash available, then odds are it's going to
be easier to spend all of it, or a little bit here and there, on things other than investing to make up for that $248,000 deficiency. You very well may be the
outlier that sticks to it, but most of us mere mortals can barely avoid eating junk food when we have it in our house, so we're better off steering clear of it at all costs, if possible. And number two, even if Stan invested that $115,000 over 30 years, he would still be behind Ian because no other investment
account he puts money into can compete with the triple
tax savings that you receive with a health savings account. Why I consider an HSA even better than any other retirement account is because of the triple tax
savings that it offers you. First, unlike a Roth IRA or Roth 401(k), the money you contribute
to a health savings account is pre-taxed from your paycheck, so you save right off the bat. Second, unlike a taxable
investment account, any gains from your HSA are not taxed. That means investment
growth, dividend payments, and interest accumulated is never taxed. Third, unlike a traditional IRA, 401(k), or taxable investment account, when you withdraw money from
an HSA for medical expenses, you don't pay taxes on
those distributions. So if you end up with an HSA worth hundreds of thousands of dollars, you'll never pay taxes on that money as long as it's used for medical expenses. There are two ways to open an HSA, so let's get you up to speed on those. Then I'll share my
preferred account providers based on personal experience. The way an HSA works is you have to be enrolled in
a high-deductible health plan, sometimes referred to as an HDHP, at the time that you
contribute money into your HSA. If you are not enrolled in an HDHP, then you cannot contribute
to a health savings account. Here's an example of the benefits page from one of my previous employers. If you look here, you can see that they
specifically call out that this plan is a
high-deductible health plan. Not all employers will make it this clear. So if you are not sure
which plan is an HDHP, then you can either double-check with your HR department for clarification, or the IRS has written out how they define this type of account. I'll put on-screen how
the IRS defines an HDHP so that you can either pause
the video and write it down, or just do a quick Google
search to look at their website, then compare it to your
health insurance options. After you understand how
to define what an HDHP is, the first way to open an HSA is if you have an
employer-provided health plan and they offer an HSA along with it. If this is the case, then your employer has already chosen a
third-party HSA provider for you to use. For example, when I worked for Goodyear, they used an HSA provider
called Health Equity. For the record, I am not
endorsing Health Equity. I'll share the ones that I
prefer later in the video. Once I signed up for
my HDHP with Goodyear, I then had to open an HSA account with Health Equity, through their website. I then put in some Goodyear info, so that they knew I was
associated with that employer. At that point, your employer
will take your HSA contribution out of your paycheck pre-tax, then send it to your HSA at
the provider they've chosen. If your employer does not have a pre-chosen HSA provider for you, or you get health insurance on your own, then you're going to have
to pick an HSA provider and open up an account on your own. In this scenario, you're
probably going to have to contribute to your HSA on your own. Now, there might be a way to get your HSA provider and employer to set up automatic
withdrawals from your paycheck, but I'm not 100% sure if this is possible, so you'll have to
double-check on your end. Either way, money that
is contributed this way is with after-tax dollars, because your paycheck is, of course, paid to you after taxes are taken out. You'll still get the pre-tax savings, but it will come in the
form of a tax deduction when you do your taxes for that year. So don't worry. The way this works is your HSA provider will send you a form with all of the info, laying out how much you
contributed, so the IRS is aware. One thing to note about
if you have to self-fund is that while you will get
a federal tax deduction, you will not get a tax deduction for supplemental security income, which is sometimes referred
to as SSI, or Medicare, like you would if an
employer is depositing money into the account on your behalf. Because you are in full control of depositing this money on your own, it's going to be easy
to accidentally forget. So you have to do your best to make sure it is done every
single pay period or month. We are all forgetful from time to time, so the best suggestion that I have is to set up some sort of
automatic direct deposit from your bank account into your HSA, if you have to go the self-directed route. There are a ton of HSA providers, but I've only had firsthand
experience with five of them. Out of those five, I try to avoid HSA providers who charge an ongoing fee, if possible. When I worked for Goodyear and they forced me to use Health Equity, one thing that I didn't
like about that provider is that they charged an ongoing fee. Although it was small, I didn't want to have to pay for something that I could get for free Before I tell you how much I've made from my HSA investments, you should know that you are
able to take an HSA with you whether or not you stay
with your current employer. Once your employer deposits money from your paycheck into an HSA, you have full control to do
whatever you want with it and you can take it anywhere you want. Once again, when I worked for Goodyear, I was forced to use Health Equity for where they deposited the money. Once the money was in the account, I could do whatever I wanted with it. So I decided to transfer a portion of it to Fidelity and Lively, to avoid as much of the fee that Health Equity was charging me. I also didn't like the fact that Health Equity forced
me to keep a minimum of $1,000 of uninvested cash at all times. There was no way to get around this without closing the account,
which wouldn't be good, since my employer was still
contributing money to it. But since I left Goodyear a year ago, they weren't putting money into my health equity account any longer. Which is when I decided to
ditch that HSA provider, close my account, and move the rest of my
money to Fidelity and Lively. I obviously can't tell you
how to invest your money if you go that route, but I personally prefer to stick with low-cost
index funds or index ETFs, like the ones that I've made videos about, which I'll linkup down in
the description of this video and above my head as well. I also prefer the two
or three fund portfolio for something like an HSA as well. Now, I've made videos on both of those, which I will once again
linkup in the description and above my head as well. At this point, I've been
investing my HSA money for five years and have received
an average annual return of a little over 8%, which
is higher than the 7% I was doing my calculations
based on, earlier in the video. The stock market is
currently way down as well, so I'll take 8% every
single day of the week, especially during times like these. If you are worried that you are
going to need your HSA money within a short period of time because you can't afford to pay out-of-pocket for medical expenses, then please, please, please
do not invest the money. Due to short-term volatility
in the stock market, it's not worth the risk if you are not going to be able to commit to staying invested for at
least five years or more. One little hack that I want to mention to maximize your HSA money a little more is to pay for all of your medical expenses with a good rewards credit card, then pay it off at the
end of every single month. My thought with this is since I'll be spending money
on these medical expenses out-of-pocket anyways, I might as well charge it
instead of paying cash, so that I can take advantage
of my 2% cash-back rewards. Bonus tip, I use Fidelity's
2% cash-back rewards card, then convert my points to cash by depositing them into a
Fidelity brokerage account, where I then invest that money
into even more index funds. I know not everybody
likes to use credit cards, so if you feel comfortable
with doing this, go for it. If not, no big deal. I just wanted to make
sure that I mentioned it. This is the warning part of the video. Now, you can withdraw money from an HSA for non-medical expenses, but it comes with a pretty big price. If you are caught using this HSA money before the age of 65 on things other than
approved medical expenses, that amount will be
taxed as ordinary income and you'll also pay a 20% penalty as well. For example, if you spend $500 on a non-medical expense and you are in the 24% tax bracket, then you'll pay a $100 penalty, as well as $120 for income taxes. This is a bad idea that I
suggest avoiding at all costs, because it defeats the
whole purpose of an HSA and essentially cancels
out any benefit it offers. The reason I mentioned at
the age 65 a second ago is because starting at the age of 65, you are able to withdraw
money from your HSA for non-medical expenses,
without paying the 20% penalty. But you will still have
to pay ordinary income tax on the amount that you withdraw. If you go this route, then the account pretty much turns into a retirement account, like a traditional IRA
or traditional 401(k), so it's pretty much a win-win. With an HSA, you are going to need to know how to manage your medical receipts, so I'll show you how to do that as well as answer some other
important HSA questions in this video to your left. Make sure to tap that thumbs-up button and hit that subscribe and
a notification bell as well. Check out the additional investing and personal finance resources
in the description below. I'll see you in the next one, friends.
