- If you don't contribute
to an HSA every year, then you could be losing out
on 100s of 1,000s of dollars, and if you are, then you
could still be missing out on that same amount, not
because you're a dummy or anything like that, but
because you might not know how to use a Health Savings
Account to its full potential. The Employee Benefit Research
Institution found that only 6% of people who have an HSA are using it in a way that I'll show you in this video. So the odds are that you are
a part of that 94% of people. Let's fix that. To be more specific, you could
potentially be missing out on anywhere between
$300,000 and $600,000 plus. Now, if that doesn't get your attention, then I don't know what will. In this video, I'm gonna
break down everything you need to know about an HSA so you
can increase your chances of growing it to anywhere
between 300 and $600,000. Later in the video, I'll
take you into my HSA account to show you how much I
have and how I'm using it to invest for financial
independence and early retirement. We're gonna cover things
like the what, why, and how, my top three HSA accounts
that I recommend, I'll show you you how to
use the account to maximize its potential, and I'll share
with you some of the tips and tricks that I've found along the way to turn my Health Savings Account into the ultimate wealth-building machine. This is one of those that
I promise you will regret not knowing about in the future, so pay attention and watch until the end. Hey, I'm Jarrad And on this channel, we talk about all things
personal finance, investing, and financial independence. Feel free to leave any questions
down in the comments below, and I will answer every
single one of them for you. If you could do me a
huge favor and Hulk smash that thumbs up button, I
would greatly appreciate it. It helps support myself, my dog, Molly, and of course, this channel. So thank you so much in advance. At a basic level, an
HSA is a savings account that allows you to
contribute pre-tax money to it every single year. Starting in 2021, the lonely
single people out there like me can contribute
up to $3,600 per year, and a family can contribute
up to $7,200 per year. Just a heads up, expect those
amounts to increase over time. So if you're watching this
at some point in the future, then they're probably higher, but everything else in
this video is relevant. If you're 55 years or older,
then you can contribute an additional $1,000 per year on top of that $3,600 and a $7,200. The average person who
doesn't know any better looks at a Health Savings Account as a way to save for future health costs, hence the name Health Savings Account. That person puts money into
the account throughout the year and withdraws it whenever
they have any medical expenses to pay for, but instead of looking at it as a Health Savings
Account, I want you to look at it as a health investment account. To be more specific, I want you to look at and treat an HSA like it's an
additional retirement account. Think of it like a 401k,
IRA, 403b, and so on, except for the fact that an HSA is a completely tax-free
investment account. More about that in just few
minutes though, so hang on. Think of an HSA as a way
to start preparing now for medical expenses you're
going to have when you're 60, 70, and 80 plus years
old because we all have medical expenses or more medical
expenses as time goes on. It's like insurance for
yourself, except for the fact that you get to keep all of
the money that you put into it. I personally look at an HSA
as a way to earmark less of the retirement money
that's in my 401k, IRA, and taxable investment
accounts for medical expenses. Real quick, I need to
get this out of the way. Nothing that I say in
this video should be taken as investment advice. Please, please do your own research. I'm just a guy who makes YouTube videos and enjoys drawing stick
figures in his free time. When you put money into an HSA, there's three things
that you can do with it. Number one, you can let the
money just sit in the account and slowly lose value due to inflation. Number two, you can spend the money in the account on medical expenses that you have today or in the near future. So if you go to the
doctor next week to get that cough checked out, if
you pick up a prescription, if you need to get a
filling at the dentist, or any sort of medical costs like that, then you withdraw money
from your HSA account to pay for those expenses today, or number three, you could invest the money
within your HSA account and let it sit there. Now, if you really want
to maximize an HSA, then investing the money
and not withdrawing it for today's medical expenses
is what you'd want to do. This might not make sense
on the surface though because if you have medical
expenses to pay for today, then how are you supposed to pay for them if you don't use it money from your HSA? Great question that we need to address. You'd pay for those expenses
out of your pocket today to allow your money to be invested within your HSA for as long as possible. This is how you really unlock one of the many benefits of an HSA. You'd want to avoid taking money
out for as long as possible so that it can stay in the
account to continue to grow. I cannot stress that more. Let's compare two people who
both contribute to their HSA for one year so that you can
truly understand the power of investing money in the account. We'll call these two
people Asher and Kensley. The only difference
between the two is that one of them spends all of his HSA
contributions for the year on medical expenses in that
same year without investing it, and the other decides to max
out her HSA for the year, invest that money within the account, and pay for any medical
expenses out of her own pocket so that that money can stay
invested within her HSA. Because Asher contributed
$3,600 and spent $3,600 from his Health Savings
Account, he is left with $0 in his HSA account by the end of the year. Because Kensley contributed
$3,600 and spent $0 from her HSA, she's left with
$3,600 plus a little extra from the growth of her
investments by the end of that same year, but here's
where it gets interesting for Kensley and not so much
for Asher because he decided to spend all of his HSA money right away. She doesn't plan on
touching that $3,600 at all. She's gonna let it stay
invested within her HSA account and pay for her medical
expenses out of pocket. Not only is Kensley the name
of my niece and probably one of my absolute favorite
humans in the world, but she's actually really
smart for doing this. If she didn't touch that
money and let it stay invested for 20 years, then that one
year contribution of $3,600 at a 7% return would
turn into almost $14,000, and it would grow to $27,400 in 30 years. So even if Kensley had the
same $3,600 in medical expenses as Asher for that first year that she paid for out of pocket, she
still had overall by $23,800 in 30 years because the
growth from her money that was invested within
the HSA because 27,400 minus 3,600 equals, of course, $23,800. Hashtag math. Think about that for a minute. You'd only need to contribute
to an HSA for one year and invest the money to
have it grow to that amount. If you were a family that
contributed the $7,200 for just one year, then after 20 years, it would grow to $27,800 and
over $54,800 in 30 years. The key here is to try to
keep your money invested within the account for as long as possible so it has time to grow. We'll cover how to invest the money here in just a few minutes, so
hang tight, but hold on because an HSA has another
benefit that's overlooked a lot. It's probably the biggest selling point of a Health Savings Account. An HSA has triple tax savings. It's not very often that
the IRS legally allows you to skip out on paying taxes once, let alone three different times. The first way, the money
that you contribute to an HSA is pre-tax
money from your paycheck. The second way the gains
from your investment growth, dividend payouts, and
interest accumulation is not taxed at all, and the third way, when you withdraw the
money for medical expenses, you do not pay any taxes
on that distribution. One, two, three. An HSA is like a Roth IRA on steroids, so it's extremely
important to take advantage of it if you're able to. One way that I'm supercharging
my HSA even more is by charging all of my medical
expenses over the years to a good rewards credit
card and paying it off at the end of every single month. 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 I can take advantage of my 2% cash back rewards. So not only am I earning 2% on the money that I'm already
spending, I'm also getting a triple tax savings and growing
my money by investing it. If you feel comfortable with
doing this, then go for it. If not, then no big deal. I just wanted to make
sure that I mentioned it. Now, there's a couple of
different ways to open an HSA. I'll talk about my top three
accounts in just a minute. First, you need to be at
least 18 years old and covered under a high deductible health plan, sometimes referred to
as an HDHP for short. Here's an example of what mine looks like that I have through my employer. Notice how it says HDHP
as part of the name. That would be the one that you'd want to choose to be eligible for an HSA. I'd say that the majority
of employers offer an HDHP. If you can't find one, then talk to your HR department or manager. If you get health insurance on your own, then you should definitely have access to a high deductible health plan. Once you sign up for a high
deductible health plan, you'll need to open an actual HSA account. Now, there's two ways to do this so that you can start
investing in that HSA. The first is through your employer. If your employer offers a
high deductible health plan, then they may or may not offer
you an HSA account as well. If they do, then they've already chosen the third-party company
for you, so at that point, they should provide you with
a link to open up an account. Now, my employer uses a
company called HealthEquity, which is the third-party company that I manage my HSA through. Money gets deposited directly into my HealthEquity account
every time I get paid, and at that point, I can
start managing that money. If your employer does not
provide an HSA company for you or you get health insurance on your own, then you need to open up
an HSA account on your own. In this case, you'll have to
deposit money into the account on your own unless you're
able to set something up with your employer where they
send your HSA contributions directly to the HSA provider that you've chosen
every time you get paid. There's three HSA
providers that I'm familiar with where you can open up an HSA account. The first is HealthEquity. Now, they do a great
job, but my one problem with them are the fees that they charge. Now, to be transparent, they only charge a monthly 0.03% administration
fee, which isn't a lot, but I'd prefer not to pay
anything at all if I can. If my employer didn't choose
them for me automatically, then I would've chosen a different one, which I'll talk about in just a minute. The second is Fidelity. Now, they offer an HSA with zero fees. Now, I like zero the zero
fees part of Fidelity, but the one thing that
I hate about Fidelity in general is their user
interface for investing. I personally think that it's
trash and extremely confusing, but if you already have
a Fidelity account, it might make sense to
open up your HSA account through them as well. The third is Lively. Now, they're by far my favorite. They charge zero fees, give you access to low-cost index funds, and their user interface
is very, very good. They would be my personal
number one choice. Let me give you a little behind-the-scenes of what I'm actually
doing to utilize Lively. Now, since my employer forces me to automatically have my
HSA contributions deposited into my HealthEquity account
or a HealthEquity account, I'm personally rolling over
all of those contributions to a Lively HSA account every
single time that I get paid so that I can avoid the fees
that HealthEquity charges me. So keep that in mind, no
matter who the HSA provider is that your employer chooses
for you, you have full control over being able to roll
that, roll that account or that money in that account
into a different HSA company if you are not happy with the one that your employer has chosen for you. I'll have a link to open an account with each of these three providers down in the description below. To be transparent, the Lively
link is an affiliate link. So if you open up an account using it, then it does help support
this channel and myself, of course, at no extra cost to you. Let me make this very clear,
I can't tell you what to do with your money or how to
invest it, but I personally only invest my HSA money
into low-cost index funds. Now, I created a whole video
on everything you need to know about low-cost index fund
investing that I'll link up right above my head and down
in the description as well. I've been investing in my
HSA for less than two years, and my account is currently
worth almost $7,800 at this point in time. Now, that's an investment return of 26.9% over that time period. So far, so good, and that example for Kensley was only at a 7% return. So I'm ahead of the curve at this point. The nice thing about an HSA
is that you have full control over it and can take
it everywhere with you. Once you start putting money into one, it is not tied to your employer at all. If you leave your current employer, then you still have access to that account through that third-party
HSA company that you use, or if you leave your current employer and you don't like that
third-party HSA company that they're using, so if
I didn't like HealthEquity, then I could roll all
of that money that I had in HealthEquity over to
a company like Lively. Technically, you can withdraw your money for nonmedical expenses, but it does come with a little bit of a price,
actually a pretty big price. If you use your funds
to pay for things other than qualified medical expenses, then those funds will be
taxed as ordinary income, and the IRS will impose
a 20% penalty as well. For example, if you spend
$500 on non-qualified medical expenses out of your HSA, then you'll pay a penalty of $100. This $500 will also be
shown as earned income for the year as well,
which you'll pay taxes on. Not cool. Don't do this because it defeats the whole purpose of an HSA. I'll have a link down
below in the description to give you access to a list
of qualified medical expenses if you want to kind of check
it out, and just a heads-up, there are a lot of things covered
and I honestly only expect for this list to grow as time goes on. So if you look at that and you're like, oh, this isn't covered, this
isn't covered, don't worry because the coverage usually
grows from year to year and they keep adding more
and more things to consider as qualified medical expenses,
but after you reach the age of 65 or if you become disabled,
you can withdraw HSA funds without penalty, but the
amount that you withdraw will still be taxed as ordinary income. Just to touch on the insane
amount of tax-free money that you can accumulate over
time, if you maxed out your HSA at $3,600 per year as a
single person over 30 years, then at a 7% return,
your account would grow to $340,000 of tax-free money. If you max out your HSA at
$7,200 per year as a family over 30 years, then at a 7%
return, your account would grow to $680,000 of tax-free money. Don't forget to Hulk smash that thumbs up button before you go. Check out the description
for more resources and playlists to help out with
all of your personal finance, investing, and financial
independence needs. I'll see you in the
next one, friends, done.
