Breaking Down the HSA | Refresh Your Wealth with Mark Kohler & Mat Sorensen

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Welcome everyone to the Refresh youh Wealth podcast with Mark Kohler and Matt Sorenson. Excited to be here. It's summer. Arizona's beautiful despite, you know, 115 degree temperatures. And we're talking about a cool topic today too. A big topic, an underutilized topic, a great tax strategy.

Misunderstood. Yeah, misunderstood unknown.

One that has some new things in 2020 you might not know about.

Yeah.

Some new ways you can use it.

All right. And if you've seen the title of the show, Friends, you know what that is. It's the Health Savings Account. And we do a show once a year on this because it's always the contribution amounts change every year. There's always some little tweak. Frankly, the strategy only has gotten better and better over the years. And if some of you are like, well, I work for someone else, I can't have an hsa.

Oh, you might.

You don't know. So we want to tell you all the cool things about this and then how you can get one. And that's the point of the show. And I think you'll really enjoy it. It's going to be good.

Now let's, we want to hit some current events though, let you know what's going on in the world of tax and business and then also maybe give you a tax and legal tip off topic. So if you're new to the show, that's kind of the current format, how we like to run it. We have an open forum, a call in show where you can call in with questions that we do every three weeks.

So and I like this, I like this current event piece, Matt, because I am not liking turning on the news right now. I mean there's, you know, who's getting tear gassed. I mean, and rioting. I mean I, hey, I'm all up for good protest, but rioting and destroying courthouses and then there's Senate hearings and then there's Covid updates. Watching the news is not fun. And so we get another line of news, I guess, if you will. We're tied into a variety of wires or news feeds that give us news about small Business and investing and stuff that you want to know that's not depressing. So I think we can have some interesting points. I'm going to throw out a big word, Matt, because I know you've been following it. Cryptocurrency, little update there?

Yeah, yeah. So you know, with all the stimulus spending that's going out, a lot of people who think we're going to have massive inflation and don't believe in the dollar and the government prints money whenever they want. Crypto and gold get a little popular and that's one thing a lot of our clients that are self directed actually invest into. So we've been seeing a lot more interest at directed IRA and client accounts here. We got a couple thousand now. Already. So they're like, hey, I want to buy crypto. Can I buy it? I'm seeing bitcoin now at 11,000 per bitcoin. You know, I did videos back when it was at 2500 and of course that people were buying it way before that and it's been up and down and it's speculative. So I'm not saying buy some or not, I have freaking no idea. But I'm just saying that's it. That's a big trending item right now is in the investment world is crypto and gold are starting to trend up counterbalance to all the spending and government printing of money that's happening.

And I think for some of you that are new to our show or just getting to know us or even if you've known us for years, we don't sell financial investments, real estate or cryptocurrency or gold or silver or precious metals. We don't sell that stuff. But we with our five tax lawyers, including Matt, myself, that's seven. Then in the accounting firm, we've got close to 12 CPAs in the middle of tax season. We see patterns. We see patterns of people making money and losing money and this and that. And I get some hate comments on YouTube once in a while when I even mentioned the cryptocurrency word. So for some of you, like these guys are crackpots they brought up. I'm not telling you to buy crypto, but I'm telling you I had clients that made a million dollars when it ran up the first time. It's crazy. It's. And they did. And is it speculative? Sure. But I'm just telling you what's going on.

Hey, we report, you decide. I don't know which station does that, but that feels right. So. And that's how we are. That's what self directing is all about and that's what being a business owner and I think really living the American dream is all about, is finding what works for you, going after it, working hard, having the satisfaction that you made a good decision for yourself. And so. But you can do that in an ira. That's the cool thing is people can buy crypto in an ira and we're seeing that. Like I said it at directed IRA right now.

So I've got another news point now. My sister in law is so funny. Sent me this clip from buzzfeed this morning on this Florida man who took his PPP money, lied about payroll, multiple businesses had some legitimate business and it appears everyone's innocent until proven guilty. But it's, it appears to have racked up three or four actually he put in seven PPP applications and got over $2 million. Maybe he was making money, maybe he wasn't. But it didn't look good when he drained his bank. Not drained. Took his bank account and bought a bunch of cool stuff including a Lamborghini. Here's the picture. This thing is pretty sexy. Yeah, this cool orange Lamborghini. And I loved reading the comments. This one woman said, classic. It starts out with a Florida man. What did you expect? Yeah, no offense to those of you in Florida that are men, but yeah,

it's total track the criminal element. Let's just.

But the side note here in the current news event on this is the government is cross checking in their computer systems. At the very least people that are applying for PPP money and did they have actual payroll and were they what blew the case on this one? His company wasn't even registered with the state, it was defunct. And so that threw up a red flag. So this is why company maintenance and doing your minutes and making sure those things are paid. We have a service for that, very affordable, some of the cheapest in the country and making sure you are legit on these types of applications. So they're gonna make an example of this guy because they want a chilling effect. People out there, they're screwing around with PPP money. This freaks people out. You know, I bought a new computer. Is that bad? You know?

Yeah, yeah, you got to be careful with that PPP money and idle money and if you got some mistakenly, be ready to pay that back. Because right now, when we're in chaos right now and the government's like we want to get money out there, it's all hunky dory. But I'm telling you, next year the attitude, government, the people are gonna be like people got money that shouldn't have and we need to chase those people down. And so if you're in that camp, you do not want to be on the receiving end of that because you're talking criminal charges. No, not like you need, you owe us the money back. They're gonna go after you for fraud and criminal charges. And so just be careful on. We've been getting some questions on that. PPP is ending in a couple days. Yeah. Right.

So applicate the application to get PP

may new loan if you haven't done PPP yet. Right. So your, your deadlines just in a couple of days. So that's another news update. Now the stimulus debate, right. Unemployment, the 600 bucks is going away in a couple days. They're negotiating that. We'll update you next week. Of course, if a bill passes over the weekend, who knows? It looks like there's not a lot for small business. I'll just be honest. It looks like it's more unemployment insurance, some credits if people go back to work from unemployment and. Yeah, I mean there's some other stuff. Health related. Yeah.

And I want to add this on the PPP front. A lot of people are asking, well, can I apply for my forgiveness now? Is the easy application available? Yeah, the application's out there, but banks for the most part are not accepting it yet. They're trying to get their system in order so that when those applications come in, it's like Bing done. And instead of the banks scrambling like they did on the first round to get the money out. So when people ask for forgiveness, it's going to be hopefully much more streamlined and simple. And there's certain applications out there that, that have been if you have a loan that meets certain criteria, they're trying to get automatic forgiveness for loans under 150,000. So stay tuned. We've got some great videos. I say that humbly. And the YouTube podcast as well as sorry in the YouTube videos and podcast, which our show is simulcast. Get over and check those out. Some of those later shows because we talked about the forgiveness procedure. I've got an article as well as Matt. Both of us have articles on entrepreneur.com getting forgiveness for the PPP. So yeah, and just don't leave it up to your accountant or your lawyer. Get involved.

The next few months, that's what's going to be happening as people will start doing forgiveness. So that's coming down. There's a lot of people who want it done right. It's Like, I spent the money. Right. I want to get it forgiven. I want to be done with it. I want this debt out on my books or just even seeing it. I just want to be done with it and move on. We get that. So it's coming. And we'll be updating, of course. All right, well, before we get to HSAs and the main topic, which is pretty cool because it's a great tax strategy, you can self direct. Like I said, it's cool. We like to give a tax and legal tip. And I look, am I doing. You're doing. Legal is yours.

Okay, I'll throw down legal.

All right, let's do it. All right.

Legal tip.

A legal tip that you can actually use.

A legal tip where you don't feel like you have to take a shit hour after.

Okay. On this legal tip, I want to talk about a personal situation. My wife and family sometimes hate it when I use personal examples because, you know, I draw back the curtain on our lives and privacy. I do teach privacy, but, you know, it is what it is when you're out there trying to market yourself. But it was interesting doing some yard work, and I had one of my nephews come over a couple weeks ago, and I had two or three of my nephews and two neighbor kids come over and help dig some dirt, move some rock, things like that. Well, he hurt his shoulder. He was using a pick, trying to break through this hard spot in the ground, and he tore his rotator cuff or something like that. Some rotator in the word cuff involved. So whatever that is.

Sounds like a car part to me, but okay, I know it is. It's like a major league pitcher tears

a rotator cuff at Napa auto parts. They're 49.95 right now. Yeah. But anyway, he hurts his shoulder. Well, he goes home, tells his mom and dad, and they didn't say anything for a couple days, but they had to take him to the doctor. He's in physical therapy. And a few days later, I'm like, dude, what's up with your shoulder? He's like, I heard it. Well, where's your nerve? At your house? I'm like, what? So I immediately went and saw his mom and dad, who are great. They're family, you know, they're family. And I, you know, see him probably three times a week. But I went over and said, hey, I just heard. You didn't tell me this little guy hurt his shoulder. Little guy, he's 19, 20 years old, but hurt his shoulder working in my yard. And they're like, yeah, we didn't want to say anything. I'm like, I'm paying the bill. They're like, thanks, you're awesome. You know, and they have insurance and there'll be some co pays and this and that and some physical therapy. But I told them I don't want one dime coming out of your pocket. Now, maybe I'm different than others. Maybe I'm upstanding guy. Maybe I don't know. And it's family and all that but. But the point is that could have been one of the neighbor kids and if that was one of the neighbor kids that got hurt and now a lawsuit could occur, I could be on the hook for a lot of money. It could be a dangerous situation. So the legal tip is in your business and at your home, be careful paying people under the table. You may want to make sure you have a licensed contractor. I know it costs more. I know, I know it costs more. But you might want a licensed contractor. You may want to have them on your own payroll in your company and do make sure they're under workers comp and not try to write it off in your business if they're working for your prior, your personal residence, things like that. I'm not talking about tax issues. That's a whole other story. But when you have people working for you doing manual labor in your home, at your office and they get hurt, it's scary. So that's when lawsuits happen and it's when you don't have any sort of insurance. Now some of you may be going to Mark, couldn't you make a claim under your homeowner's policy? And I could. I've got a deductible there. If he ultimately has to have surgery of some sort, I might, I might make a claim under my homeowners insurance. That would be the difference of not going to workers conversation. But anyway, we could do a whole show on that. In fact we have before on the difference between subs and employees and the danger of hiring people with cash. But it happened to me two weeks ago with a family member, cross my fingers. His physical therapy, he should be back to normal, no major surgery. But if he has to go into major surgery and it's going to cost, I may have to turn to my homeowner's insurance. And if it was anyone else, it could have been a lawsuit. So of course it is my brother in law. Maybe he'll still sue me.

I don't know.

We all like that.

Careful, careful of all these admissions you've Just made. You know, from a legal standpoint, this is exhibit A. Toast. Yeah, you're toast. Hey. But it can happen to anyone. And, you know, it's. Back in the day, I had a litigation case. I did do some personal injury cases at one point. You know, I didn't chase ambulances. I'm more kind of like just followed them around, you know, Pull up in your driveway.

We got one here.

Yeah, I was just trying if one swaying by. I was like, hey, what's going on over here? So. But I had this case of. Okay, this is an interesting one. An employee at a company worked in a building that had stairs. She fell down the stairs at the company. Okay. And she was working and had significant long term medical condition from it that had, like, nerve damage and like, really serious stuff that was like forever. She was gonna have medical issues from it. And she was older. She's maybe like. Well, I mean, she's in her, like, late 50s. Okay. And she's 50 now. I know I turned 51 this year.

So Matt's like, she's older. She's in her 50s. I'm like, excuse me.

Anyways, so let's just say she was older. Okay? She was in her 20s, all right? She wasn't a spring chicken. Okay. So. All right, but now here's what we did. And this is Matt, personal injury lawyer. Okay. So I had my.

So you represented the lady?

Yeah, yeah. This is like. Yeah, so. Well, we didn't want a workers comp case. Those are crap. You don't get paid very well from a plaintiff. All right? And that's nice for you business owners. You want workers comp. Cause it protects you. That's the only thing they can get is the workers comp insurance. Okay. But if you're a plaintiff, you're like, well, I'm barred. There's. It's capped. And it's not great if you're an employee. Well, what we did was we looked at who owned the building, who's maintaining the building. It was the business owner, separate entity that was owning the building and that we were able to sue and say, well, it was liability of the building, not liability of the business and the building. The. The entity that owned the building had the responsibility to maintain it and keep it in good working order and all this. And so that rose a claim to kind of try to get around the workers comp. But the point of that is workers comp is a benefit to business owners. It really protects you from liabilities. So if you have workers and you're doing the 1099 game, which is bad for taxes anyways. Get them on as W2. Make sure you got workers comp.

Make.

We know it's a pain. Obviously, it's a cost. If you're running business in the long term, you're gonna run into this issue, and workers comp really protects you.

I love it. I think that's. Now, some of you may say, well, freak, you guys set up my entity and set up an LLC to own my building. Are you telling me that doesn't protect me and all that? No, it does. Matt couldn't get in this example saying Matt's the attorney representing this woman that fell down the stairs. He couldn't touch the. The business owner's personal residence, their other investments, their home, their IRAs or 401. So there's still that barrier. But I bet what happened is Matt was able to tap into the building insurance. No one went out of pocket. I'm sure, you know, that's 99% of these. It's just insurance paying out. And that is probably the case. Am I guessing properly?

Right. Right. And we would only know that there would only be the equity in the property itself if we got anything at the LLC after insurance. And so there's that liability protection, of course, that we couldn't go after the business owner's personal or other assets. So. Yeah. So that's. I'm not saying don't obviously do that structure. That's the benefit you want to do that structure. Yeah. So. But it's just a. I was trying to show you want to have workers come. Okay, that's good. It protects you.

And when you hire people to work on your home, and I'm going to call an audible and let's say, let's skip the tax tip, stick with hsa, which is a tax tip in and of itself. Is that okay, Matt?

Yep.

So. But let me finish with this point. I would say this. It's very scary and precarious going down to the Home Depots of the world and trolling the parking lot for someone that's going to do some day labor for you. Nine times out of ten, nothing will go wrong. You get a great rate. You get someone to move some trees, load some crap and move it. But if anything goes wrong, even in the transport of your stuff across town and something falls out of a truck and kills someone from a day laborer that you're hired to move stuff, you could be on the hook. And so doing it yourself or hiring licensed insured contractors to work on Your home. When there's a fear of a possible accident, it's just. It's just good practice.

So, yeah, that's why you see the license. Bonded insured. Okay, let's hit hsa because you're right, this is a massive tax tip and it's the show we want to talk about. It's the main course for today's totally.

I mean, this is a chapter in my book, tax and legal playbook I'm looking at over here. I may go grab a copy just to get a little, you know, visual.

Yeah. Little bump in tax and legal playbook sells.

But here's the thing I want that Matt and I decided before the show. We want to tell you how cool these are and how anybody can have one, whether you're employed or self employed, and how easy they are to maintain and I guess transport with you or move with you wherever you go. They're not employer specific. We'll get into all the details. But we want to tell you how amazing these are because they really are misunderstood, underutilized in an incredible tax and wealth building strategy. The number one cost of people in retirement and the number one reason people pull money out of retirement accounts is for health care. And if we can get a jump on that and be proactive with the health savings account in some amazing ways as well, we can be building wealth for the future specifically tied to health care. And so there's so much here. Anyway, Matt, I think that's probably where we go is let's make it sexy and how cool they are. Then we'll tell you how to do it, which isn't that difficult. But you had some numbers too on some stats I thought were interesting.

Yeah. So there's $72 billion in HSAs right now that people put money into. This is interesting. There's about 30 million HSA accounts out there. All right. Now, the average balance, if you can do the Math, there is 16,000. That's the average balance that someone has in their health savings account. Certainly lower than IRAs and 401ks, but still pretty significant. The average balance is 16,000. So I think there's obviously been 30 million Americans who have been like, hey, this is a smart thing to do, have a health savings account. And let me tell you the number one reason why I think it's you should be doing it. We're getting into detail above the line tax deduction. Okay. There's no income phase out. So matter how much money you make, okay. No matter AMT or all the weird things you may have had in previous years. You may be freaking out with Biden's tax proposals. Okay, this has always been and always will be. It's liked among Republicans and Democrats an above the line tax deduction you can get no matter your income. That's pretty awesome because a lot of people's health care expenses, they're like, I'm tracking all my healthcare expenses, I'm gonna expense them. And then you go to your tax attorney, take it to your accountant, it's like, well, is this a miscellaneous itemized deduction? And you never get to take it. Even if you spent thousands on medical, which we all do, you get no deduction for it. This is the one way to do it. And if you just use this simple account, you get a deduction on your healthcare and not even if you don't spend it. It's just what you put in. We'll get into all that, but it's the one that should be on everybody's tax return.

I love it. And I'm going to make a list here of benefits. And the list of drawbacks is very few, if any, but we're glass half full kind of guys. But still, I'm going to make that list. So now I want to clarify what Matt means by above the line. Just saying it a different way. Bill Gates could go open a HSA account. Now, I don't know if Bill Gates is over age 65, we'll come into some age things. You can have an HSA that you've built over your lifetime, but once you turn age 65, you can't make new contributions. Another detail will come to you that's probably one of the drawbacks. In fact, let's come back to that in a little more detail. You can still have it. You just can't. Think of it like a Monopoly board. You can go around the Monopoly board and get $200 every time you pass go and every time you pass December 31st, you can put new money in your HSA. We'll get to the amount. But the poor point that Matt's making is your income limit doesn't matter. Almost with every other deduction that is on your personal return, you phase out. You can't take the student interest deduction or the dependent for a kid or the dependent care expense or blah, blah, blah. All the miscellaneous phase out this and phase out that. All those phase out things do not apply. So if you've got the right type of insurance and we'll talk about qualification, then you've got the ability to take a Write off above the line before any other. Write off huge. Tell them amounts, man.

Oh, yeah. So now they actually just put out the 2021 numbers. Can you believe it? 2020. I mean, it's been a tough year for a lot of people. But here's 2020, and I'll hit 2021 individual. For 2020, you can put in 3550 family, which could be you and a child or you and a spouse is 7200, okay. Or sorry, 7100 for 2020. So 3550. And basically you double it for family. 7100 for 2021, depending on. You're listening to this. It's 3600 individual, 7200 family. That's how much you can throw in. You're going to get a deduction whether you spend that money or not. If I'm like, if I throw in 7200 bucks, I'm getting a $7200 tax deduction whether I itemize or not. And I don't have to spend the money. I'm getting the deduction regardless.

Yes. Now this gets so good. By the way, here's my little promo.

Nice.

The Tax and Legal Playbook.

Second brought to you by Mark Jay Kohler, the author of Tax and Legal Playbook. Yep. And endorsed by Matt Sorenson.

Yep. Second edition. Thank you, Matt. Get it on Amazon. Get it over@markjcohar.com Chapter 11 is Kohler Care. Now, I joke around because of Obamacare. Kohler Care. I go through nine, seven, eight nine strategies, one of them being the hsa. And a lot of people don't do strategic planning in this healthcare arena because they think it's. There's nothing there. There's nothing to be had. But there's a lot. And accountants don't talk about it enough. Now above the line, 3550 single, 7100 family that could be head of household or married. As long as you've got a dependent in your house, you're. You're getting the family. The third thing I'm going to say is it, it's not a user to lose it. Now, that's important. Notice how Matt said it's a savings account. You can use it or keep it and wait till next year. And we got to talk about last year, but in a moment. But you can use it or keep it for the future and invest it another benefit. I mean, there's so much. But this is not a use it, lose it plan. And so I'd like to point that out right now, not use it or lose it. It's yours. And if you leave your employer and they threw some money in there for you, you. You take it with you. This is like an IRA for healthcare because it's an account that grows. Okay, there's mine, Matt.

Yeah. Okay. Now it's kind of like an IRA and that you get a deduction. Okay. Regardless of income, though sometimes IRAs have income restrictions. You can invest it.

Oh, you're going to go to investing. That's the next one you're going to.

Then, well, just give a little teaser. You can invest it and grow it. Okay. This like, like the average balance right now is $16,000. Well, most people are just saving it. Here's an interesting stat. Only 6% of HSAs actually invest their account. 94% just let it sit in cash because that's what most HSA administrators do. You drop your money in, they just put in a savings account. You get pretty much.0001% interest. And they just want that money to sit there and then you pay it out for healthcare. Or you could be smart like 6% of people that have an HSA and actually invest it.

I like I did that number four. That was not a teaser. I like it, Matt. We call that number four. So it's a savings account that you don't lose if you don't use it and you can invest it. Now we'll talk about another benefit of ways you can invest it down the road. That's like the creme de la creme strategy that'll blow your brain. You got to stick with us for that. But you can invest it. Now that I'll give number five. You can pull out money any age, anytime for a qualified medical expense. And I think the list of those qualified expenses is another benefit. But I'm just going to let Matt maybe tackle that one because he's got some cutting news on that. But I'll just say this. You don't have to wait till you're 59 and a half. You don't have to wait till you're 55, 65. You can put money in today and reimburse yourself for medical expenses that you pay tomorrow or use a debit card. A lot of times they can come with a debit card and just go use it to pay for medical expenses. So tax deduction. Invest it tax free and pull it out. Tax free. At any age. Did you hear that? At any age.

Yeah, I know. It's cool. And so like I'll give you an example of different ways people use it. And I think there's three different people who use an HSA or three different approaches on using an hsa.

Okay.

There's one who likes to just contribute the money when they know they got a medical expense that's going to come out. They're like, I don't really have the money to really save it, but I have medical expenses. I'm not going to get a deduction. So let's say my kids get embraces and it's going to be 3,000 bucks. I don't want to pay the 3,000 out of pocket and get no deduction. So I'm going to put the 3,000 in the HSA and then pay it directly out next week to the orthodontist for the braces. I just got a $3,000 tax session because I put the money in the HSA. It just happened to go right back out. So there's kind of like some people use it like that. That's actually how I've used the HSA over the years. The second category is I want to save. I know I got medical. It may pop up or I may need it for the long term, but I'm just going to put the money in and save it. I put myself 7200 or you know, or what is this, 71 or 35 50, 100 for 2020. I put in my 7100 for 2020 and if I get medical that year, I'll spend it out. Otherwise the rest just saves up in the account and I got some for next year and then I just accumulate and save. And then the third type of person, of course is the contribute as much as you can. If you use it, great. If not, the rest is invested. Not just saving. You're investing it. That could be a brokerage account or that could be self directing in real estate. Okay. Those are the three users.

I think I'm going to give a fourth in here that I love, Matt. And that is if you had an HSA last year, you just have to open the account and we recommend to all of our clients at least have an account with 100 bucks in it. And you're like, well, I'm short on cash right now. Okay, cool. And you have medical expenses you live in month to month and you forget to go down to the hsa. I talk clients all the time. I think I have an hsa. I just haven't used it. Right. You can put money in today, $7,100 and reimburse yourself for medical expenses that you incurred anytime the HSA account was open. So as long as you have that account open, you can go back and harvest. I've had clients that go back. Oh, my gosh. I'm going to go back to the pharmacy, find out how much I spent last year, go back to the dentist, go back to here. Da, da, da, da, da. Run around town, find three or four grand in expenses they've already paid for. Yeah. Put the money in the HSA and take it right back out. I mean, a legal way to launder money goes in, the HSA comes right out. You just harvested a tax deduction.

Done. And I took a misconception about HSA is a lot of people have had them with an employer and they got like a little debit card and they thought, oh, crap, I have to use the debit card. And you're at the doctor or you've got prescriptions or whatever and you forgot the debit card. You think I can't use my hsa? Oh, no, you could reimburse it. In fact, directed ira, where RHSA accounts are mostly invested when people take distribution, like they don't have a debit card. Just submit your list. Just give us the list, add it up, and we'll send you a check right out. It's not taxable. Just give us a list of the qualifying medical expenses. You're done. And so that's a great way. It's just. And I think it's actually easier is because you know how many times using that HSA card, you really want it in your pocket? Like, you know, my wallet is attached to my phone. I don't got room in here for an HSA debit card. Come on. I don't want to carry that sucker around. When I remember I'm going to the doctor, but it's easy. Just request the reimbursement. So, yep, yep.

Now I'm going to say what I'm going to pick up on some words Matt just said in his last rant. We'll call it a rant, whatever. Matt said. Qualifying expenses. Now, I'm going to list that as a benefit as well. The list is very robust, generous, kind, inclusive, long, whatever you want to call it. Let's just go through it for a minute. And Matt, you be ready with the new law. I'll let you do the new law.

Okay.

For years, you've been able to reimburse yourself for copays, deductibles, prescription drugs, physical therapy, massages, eyes, dental. I've Got a couple clients right now, and it's. I just got a ting of emotion. I got to be careful. I can get very emotional. That have two kids in rehab, one for anorexia and one for some abuse of prescription drugs. And they are wonderful people and they're going through hell. You can use your HSA to pay for that. No one gets. I get a deduction if my kids or one of us is in an institution or a rehab or some sort of facility. Psychotherapy, counseling, the list goes on and on. Those are all tax deductible expenses you can funnel through an hsa. And then, Matt, you said CARES Act.

Yeah, the CARES act changed some rules permanently. This wasn't just like a 2020 change. Okay. The CARES act made some permanent changes back in March of this year. On what qualifies. They added. I'll just give you some. Some quick ones you probably didn't even think about. Let's just call them feminine products, okay? Feminine products. This for, you know, that time of the month. Those things now qualify. Tampons, you know, pads, stuff like that. So you can pay for that with your health savings account. Also certain over the counter medications like Tylenol, any pain relievers or heartburn medication. Allergy relief. It's allergy season down here in Arizona. I had to buy the Flonase and all that stuff that would now qualify as of starting in 2020. So the list seems to keep expanding, not contracting every year, which is a good thing, making these HSAs more and more powerful. And it's interesting because the political world, this is one of the things that you get Republicans and Democrats buying in on is health savings accounts. So we like them for the long run because it just seems like the rules are going to get better. Better to have better utilization of these and to allow you to use it more. As we just saw this year. Yeah, it's huge.

Before we get to what I think is the grand finale, the coolest thing you can do with an hsa, and I've got a real life example. I've been living for eight years with it. And Matt and I have debated on this for years. I told clients before you even fund your ira, fund your hsa, fund your HSA before. Now, if you're gonna get matching at work, I'll say put your money in at work and get the match. You just doubled your money. Even if you hate what they've invested in at work, doubling your money is not a bad thing. So if there's a match, fine. But Matt's and I have gotten pretty heated at times saying you put it in an HSA before a Roth. In some ways I say yes, I'll give my argument is that you get the tax deduction and you can pull it out tax free immediately for health care. And again, the big one is the number one reason for people going into bankruptcy. And the number one draw out of a typical retirement account is for medical. So why not invest, which is our grand finale here, that how to invest it. But why not invest the HSA and fund it before you even do your Roth? Because I think you're going to pull it out of an HSA before Roth. That's my argument. Matt, what's your counter?

Yeah, the one thing is, is, I mean, I like this morning I got off a call with someone who is going to use their Roth IRA on a commercial real estate deal that they were going to close in a short term manner and make $1.5 million in it. Now would I rather have that 1.5 million drop in an HSA or a Roth IRA? This person's in their mid-40s and for them it's probably a Roth IRA. Am I gonna have that much medical coming out? You know, so I don't want too big of an hsa like, whereas a Roth ira, like sky's the limit, right? That money comes out for whatever I want without tax. But once I think like once you're at a couple hundred grand or a few hundred grand in an hsa, I think you're at a good spot. Like that could cover a lot of expenses in retirement for your medical, even your Medicare premiums, by the way, which is a cool little tip. Once you're 65, you got to pay for Medicare. I don't know if people knew that, but you actually pay for that. But you could use your HSA for that. Whereas you can't usually use their HSA to cover health insurance premiums, except for that scenario. Anyways, little side note tip.

So, and yeah, and I go on Matt's side of the table, I would say obviously the best thing is to do both. You know, if you can throw five grand at your Roth and five grand at your hsa, even if you're just doing a little bit of a balancing act, obviously that would balance in life, that would be a great move. But I think a lot of people don't even think about it. They don't even think about the hsa and they may go blindly into the Roth every year and the Roth maybe already has enough money to start snowball and invest. Why not open the can on the hsa?

You're right. You are more likely to pull out money from the HSA sooner. You'll usually hit that money before you hit the Roth IRA. And you know, obviously before 59 and a half, because we all have medical. So now let's. We kind of glossed over this. I want to say one thing. To have an hsa, you must have a high deductible health insurance. Okay, okay. Not everyone can just have an hsa.

Hold it. We're coming to the drawbacks. Oh, at the very end.

Okay, well, that's the Roth ira, because not everyone can just. You could do a Roth ira, whereas you may not qualify for this.

Oh, okay.

Fair enough.

Yeah. There's a little more qualification for an hsa, which we're going to come to. I just wanted to say the creme de la creme benefit of an hsa. And I want Matt to be the one to share this because this is his forte. And he just said a minute ago, and I know some of you rolled your eyes. Matt just off the cuff goes, yeah, I think if you had a couple hundred grand in your hsa, you'd be fine. Some of you are going, what the hell are you talking about? 200 grand in HSA? I thought the contribution was 7,100 bucks. What are you smoking? Medicinal marijuana. Which is not deductible in an HSA because it's under the federal list. Yeah.

It's not a qualifying, you know, even if you got a prescription for it. So not qualifying yet. So write your congressman on that one. Here's one, though, I think. Okay, let's hit that topic. I appreciate you teeing it up for me. Or maybe slow pitch, that, you know, like slow pitch or coach pitch or like first baseball. Coach pitch? Yeah, probably T ball. Okay, so you can. When I said you can invest it.

Right.

Okay. You can just throw your 7100 in there and just let it sit in a savings account. Or you could invest it now. You could just buy stocks if you wanted. Or what our clients are doing at directed IRA is they're making self directed investments. They're investing into small businesses. They're buying real estate. They're lending the money out. I just did an HSA transactions a minute ago for a client that put in money into a private placement, into a real estate fund that's buying an apartment building. And they just use their HSA to buy a chunk of this partnership, this little LLC that's buying. It's a real estate Apartment fund. And so they didn't want to just go buy Microsoft or publicly traded stock. They wanted to invest in something they knew. And so you can do that with your health savings account. Mark's done it. He's got his own. He's got a rental property.

Yeah. Example number two right here. Living the dream is I've got my HSA that owns an llc, I will say, in the state of Illinois, and I own a rental property. It's the cutest little meth lab. I mean, it's just adorable. Guys are great. Lots of bling. You know, I call them entrepreneurs. They really are. They're just great guys. Very helpful, kind. They pay their rent every week in a, you know, a paper bag. But anyway, okay, I'm being a little facetious, but it is a Section 8 guaranteed rent from the government. It's a little rental property for 40 grand. I bought in my HSA about seven, eight years ago. Cash flow is a couple hundred bucks a month. That LLC doesn't even file a tax return. I don't pay any taxes on that revenue. So when Matt said you can invest it, that means invest it tax free. And then when you pass, go again next year, you can put another seven grand and change in it. So you're stopping at Park Place, you're stopping at Baltic Avenue, and you're investing along the way, making as much money in your HSA as you can or you want buying Bitcoin, for crying out loud. And then you come back around full circle and your HSA is there and growing rapidly, and you can still pull it out for medical. I can go to my LLC for my HSA and pay for dental expenses.

Done.

There's no. There's not even a tax return required. It's crazy. So good stuff.

Yeah. Sounds pretty cool. And I think a lot of people just never knew you could do that. And even people who self direct that. Self direct their IRAs. A lot of them are surprised. I can actually self direct an hsa, too. Yeah, and your Capital Education account. There's a lot of other things you can self direct you may not know about. All right, now let's get to the downside. And the good news is there's not that many, but there are some things to know. Okay. We're straight shooters. All right. And I was bumping into this one. As Mark said, the HSA is better than the Roth ira. There is a qualification to have an hsa. You must have a high deductible health plan. What's high deductible? High deductible is 1400 individual or 2,800 family. Okay, so you must have a deductible of 2,800 for a family plan or 1400 individual. Some other things that technically fall into that, like certain minimum coverage of things and like that expenses. But essentially it's those deductible limits of 1400 individual, 2,800 family.

Yeah, and I was just looking at my list here too and I would say this. If your employer is covering your health care and this is where our recommendation or strategy is for clients, if you're generally healthy, what the freak, you've got this HMO juice it up $5 copay plan that you don't even use when your employer is reaching out for that enrollment period. Say, hey, I'm a pretty healthy family guy gal, I'd like to just do a high deductible plan. Most of the employers are like, please, that sounds great, thank you. Because they're going to get a lower premium from their coverage or carrier. Because a high deductible plan means you're going to go to the docs less. And so in general.

Well. Or you're going to pay less that when you go like you're going to pay out of pocket, the insurance company's going to pay less. They give you a little.

Yeah, that's right. They're going to pay less. The insurance company is going to pay less. And so anyway, you can go request from your employer, high deductible plan request. For those of you, of you that are self employed, you can still get an Obama qualifying plan. To use that term lightly. I'm not trying to diss on Obama. I was grateful he went up against the insurance companies. I consider them, you know, Satan's, you know, spawn, you know, the insurance company. But I just. But you control the game. That's the beauty of this. It's your insurance plan. Go to your employer, ask to have it, increase the deductible, make sure it qualifies for an hsa. That's the biggest hurdle and the first step really. And you can go open your own HSA anywhere you want. Let me just open the door for that. So Matt, first I'll say this. Just make sure you have the right plan. Choose it, find it, change it, whatever it takes. Freaking go for it. And then

if you have an HSA with your employer, like your employer's like, ah, here's who we use. And you've got some cash accumulated over there. They're like, now they only let me like Save it. I can't invest anything. You're like, I want to self direct, you can transfer over that cash. It's not like your 401k with your current employer that's locked down, that HSA can be moved to another HSA. So you could transfer it over, let's say to direct an IRA if you wanted to self direct it. So just keep that in mind so you're not held hostage like your 401k can be with your current employer on your HSA.

And that leads to the account that you open, whether your employer created one for you or not. And if you're self employed, you go, well, where do I open my hsa? Do I call my insurance company? No, see, that's the distinction here. The insurance is your insurance company. The HSA is a financial institution. And so at directed ira, we made sure when we went through all of our gosh, the paperwork to get approved and to be a trust company and with the banking, Arizona Banking Commission, everything, we wanted an HSA feature so that you could open an HSA account and self direct it. So it directed ira, you can go online day or night and go click, I want an hsa, open the account and transfer money into it or make your contribution. Now clarify, just because the contribution 7100, that doesn't mean 7100 per account. You've got 7100 in chips to distribute. So you can put three grand in chips at the employer's place, get some matching or whatever. Or they might put in a thousand for you that goes against your 7100. Then you go to your other HSA accounts and tap out the rest to get to 7,100.

Yep, exactly. Okay. Other downsides to HSA, I mean, there's an account fee, I guess I'm trying to think what else are the downsides?

Yeah. And see, if you have a typical stock broach account, the reason why people call it a savings account is because they're making money on your money. They're making the money, they're not paying you interest, if anything. And so when you self direct, you go, oh, I got an account for you. A few hundred bucks every year. Well, yeah, because now you've got green light to invest in whatever the hell you want. That's a good thing. You could look at it half full, half empty. The age problem, once you turn 55, I guess that we didn't even hit that as a benefit. When you turn 55, you can put an extra thousand in whether you're single or Family. So it goes from 3550 to 3650 or 7 or 8100 this year. Sorry, 4550. Yeah, I said it right. Or 8100. And then you could put that extra money in for 10 years and get a write off for it. But at age 65, no more pass and go.

Yep, you're working with the money that's in there. But if you've been doing this for 10 or 20 years, you got a good little pot of money going, all right, you maybe got it invested and it's grown as well. And so I think a lot of people think, oh, well, what can I do with 7,100 bucks? Right through that. No, you're doing this for 10 or 20 years. This is a strategy where you're only putting in 7,100 bucks. There's another way to look at this, but at the end, if you're doing it over and over and consistent with it, which is what we see with people that have successful accounts that have really saved well for retirement. And they've been consistent, they've been maxing out. All of a sudden they get to age 65 and they're like, I'm ready. You know, I don't have to stress. I've got the big hsa, I've got the big retirement account. And so just keep growing it. Know that it's not just what you put in. You can invest it and of course have an account much larger than what would just be 7,100 bucks tacking up each year. And there's so many things you're gonna be able to use it for later on.

I mean, I want to find any bad. So no one searched the price.

I got one more too, I guess.

Okay. The one bad one I'd say is if you're going to self direct, the account is typically not as accessible. You're not going to have a debit card and go down and split your groceries into two carts. And some people ask that, well, if over the counter, certain over the counter drugs are HSA qualifying, but others aren't. What I'll have people do is if they have an HSA that has a debit card with it, they'll put a separate spot in the shopping cart for those items and let the HSA pay for it. But if you're going to self direct,

which is a pain, by the way, I don't love that. I don't love the HSA debit card. It's kind of turning the way that you use an hsa, but I think it's backwards. Like just add up your medical at the end of the year and get a reimbursement from your HSA account.

I like it. I like it. It's those that have more cash flow challenges that having that debit card, George

Costanza, they have the massive wallet, like this thick, you know, like half of half a foot long. They have like every card and receipt in there for. They're the ones that will have an HSA card on them at all times.

Yeah, yeah. And. But I will say if you do even want to reimburse yourself once a year, whatever it is, it takes an extra step or a few days or whatever it is to reimburse yourself if you're going to self direct, but again, in that mode, you. You want to leave it there as long as you can. You're in Vegas. I don't know which game it is where you say let it ride. Is that craps where you say let it ride? I don't know because I'm roulette. You got the wrong.

We're the wrong two people to ask this question.

Matt and I are only good at roulette. It's really easy. Oh, I have to choose a number there and it's.

And the odds are all the same. You know what I mean? It's like I can make different bets on a craps table, but I have no idea what I'm doing.

Yeah, I think it's like, there's the

dumb guy over here.

Just take his money. Just pickpocket him right now, Save him his misery. But you're gonna let the money ride. And so some may say it's not a drawback. In fact, it's a motivator to leave it alone. That's a good thing. But some say access is difficult. What was the other one you said was bad?

Last one? The only other thing I'll say is on the bad list is when you need to get money out, there's a penalty if you want to pull money out for non medical expenses.

Oh, for non medical.

Okay. Non qualifying medical expenses, it's a 20% penalty. Plus you take it into income and it's taxable. Where IRAs and 401ks, you know, you got a 10% early withdrawal penalty and take it into tax. Okay, HSA, 20% and take it into tax. So that's. It's punitive, of course. So.

Okay, now, but that opened the door for. We got 10 benefits. And I'm going to read Them off. But the number 10, we forgot another benefit. If you don't use it for medical, you can pull it out like a regular IRA at 59 and a half. No penalty, just pay the tax. And if you die, it rolls into your spouse's hsa. If you and your spouse die, it goes into your kids ira. So there's like. This is sweet. And so we forgot to mention that. Is the IRA inheritance or use? Inheritance.

Yeah, I'll call it that.

Okay, so I've got 10 benefits and 1, 2, 3, 4, 5 drawbacks. You want to hear them?

I like it. Yeah.

All right. So here's the drum roll, folks.

Close it out with this.

Oh, say can you see. Okay. Sorry. That's Christmas vacation, you know.

Oh, okay.

I was like, okay, drum roll, please. Rusty, I need a drum roll. Okay. I don't know what happened. I checked every light. Didn't you check every light?

I checked.

Okay. See, we got to get a movie quote in today. Because I got a point for that. Matt didn't bring one movie quote in today. I did. So I'm just. So far. So when you can quote, you know, Clark W. Griswold, it's a good day. Okay, benefits above the line deduction. No income phase out. It's a deduction of 3550 or 7100 or 4550 or 8100. We'll come to that. Is another benefit, not a use it you or lose it plan. It grows as a savings account, bare minimum. Number four, you can invest it and grow it. Five, you can pull it out tax free for a long list of medical expenses. Number six, you can go back and reimburse yourself for prior medical expenses as long as the account was open. Didn't have to have money in it, just had to be open. You can fund this in conjunction with your retirement accounts and be strategic about it between Roth and hsa and make sure you're your investment portfolio mix includes an hsa. I put that as a benefit. Maybe that's a stretch. I can play with that.

I like it though.

Okay, nine or no, eight. You can. If you're age 55 to 65, you can put in the extra thousand. Or is that seven, eight, nine. And then nine was self direct. So I can grow this thing rapidly with greater rates of return. Then 10 was an IRA use or inheritance. I've actually got 12 here, but I was trying to cram them into 10. This will be in my article. I tried to do a corresponding article with all of our videos and podcasts. So look it to that the bad was if you're over age 65, no new contributions must qualify. Number two, with a high deductible plan. Three, there's account fees if you want to self direct or you don't get any interest at all if you want the bank to make money on your money. Four, access can be a challenge depending on the situation. And number five, if you use it for non medical expenses, there's a 20% penalty and taxes on that withdrawal. There you go, the hsa.

That is the health Savings account. All right, I hope some of you may have already been a little expert in a health savings account. Some of you have one, maybe even some of you are actually self directing it. But hopefully for those of you that wanted the full spectrum, you know, overview, this has been helpful. We can help it directed Ira. Of course we can just help if you need some consulting in the law firm or accounting firm. But we're here for you. We want to be a resource like Mark said, We've got a lot of other content. The tax and legal playbook's got an entire chapter on it.

Okay. Also go to Directed Iraq right now, tonight, open your HSA account, pay the fee out of your own pocket.

Done.

You don't have to do it through the HSA. You now have until April 15th of 2021 to make your contribution for this year. And even if you don't have the right type of insurance, it'll motivate you to get the right type of insurance and the insurance in December or November or whenever your enrollment period is one.

Yeah, yeah.

And you can still make a 2021 contribution. You might be able to roll over money from an old employer's hsa, but get the account going because if you do fund it in January for 2021, you can go back and reimburse yourself now. So it's almost like you're paying insurance to get that deduction in 2020 with 2021 money, if you have to.

So direct expenses, that strategy to get the 2020 expenses covered and be able to be reimbursed until 2021. So like a great little tip, way to close it out.

I mean that should let me pen drop. There you go.

Didn't even think of that. Okay, well, thanks everybody. We're have a special show next week. Yep. Make sure you're staying tuned to that. Okay. Got some announcements on the podcast and some plans we got moving forward. But thanks of course for listening to today. You know where to find us. We've been dropping the names. We'll, of course, see you next week.

See you.

Thanks for listening to another hour of refreshing strategies to better live your American dream.

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