Self-Directed HSA: It's Enrollment Time

Welcome everyone to the Directed IRA Podcast. This is Matt Sorenson, joined by the great and powerful Mark J. Kohler. And we're talking about something great and powerful. It's called the health savings account.

My favorite topic. And I mean that. I like— I am jazzed about the HSA, man. I've debated, do you ever fund your Roth IRA first or your HSA? It is a close call for me. So the health savings account is critical because open enrollment begins November 1st, and that's That's a big deal for any of you that are entrepreneurs and trying to select the right healthcare plan. 80% of Americans don't even tap out on their deductible, meaning they're buying more insurance than they really need. So, which hence means maybe we could go with a higher deductible plan, fund a health savings account, and put that money away and grow it tax-free. And Matt, can we self-direct a health savings account?

Yeah. And we're not talking about just putting that money in the bank and getting nothing on it and losing money because of inflation. We're talking about investing. Investing it in something you know and believe in. Mark's bought real estate with his HSA. I've invested in crypto with my HSA. We've both done some really cool things. And that's what we do at Directed IRA is like, once you put the money in the HSA, you can invest it and it grows. Now, keep in mind, there's 3 cool things about the HSA. When you put that money in, you get a tax deduction, right? You can put in $4,300 single. $8,550 married or just you and a child. Okay, this is a family coverage. Okay. And I get a tax deduction on that no matter my income, no matter whether I itemize or not. I get a deduction on my tax return, reducing my taxable income this year.

Now, I'm just doing the math in my head right now because at our event last weekend, people—

I was wondering what you're doing.

Yeah, well, I'm thinking through the math here because I want to tell you the power of this. Last week was our Alt Asset Summit. You can get the virtual replays there. I highly recommend it.

AltAssetSummit.com.

Love that. Thank you. And one of the topics there was I talked about the Coverdell for kids, the college saving IRA. And I used an example that if you had put $2,000 in a crypto Coverdell last year in October, same, same month last year. And if you were an XRP fan, all right, I'm just saying this year it'd be worth $8,000. $8,000. So you were able to 4x the return. Now that's— we're going to have all sorts of returns when we self-direct, some good, some bad, whatever. Some of you hate crypto, believe in crypto. Some of you love real estate, hate real estate, whatever. To each their own. Hence, self-direct. Now, if you were to fund an HSA for $8,000 last year in the month of October and chose to do a crypto HSA, which you have that option on your app, you could be set up in 9 minutes. I timed it last account I opened up. You would have had $32,000 in your health savings account today. People, this is paying for long-term care, dental, chiropractic, physical therapy, some over-the-counter drugs now, and of course prescription drugs. The list goes on and on. People, the number one reason for bankruptcy in America is healthcare expenses. The number one reason people pull money out of a retirement account is for healthcare expenses. Your HSA is more powerful and valuable than you know. Yeah.

And the number one expense when you're retired and aging, medical. All right. And so this is a bucket of money we do want to grow. A lot of people leave this one on the wayside and we're like, guys, holy shit.

There went our X rating. Explicit E rating. Okay.

I mean, I want you to know, you know, this matters. You know, is the IRS is giving you a deduction when you drop this money in. They're saying, go invest it in whatever you want. And that could be the stock market, you know, but like we're saying, you could do more. You could invest and self-direct it in what you want. We've done some cool things here and we're doing that every day at Directed. And it comes out totally tax-free for medical at any age, you know? And so like, and I want to do another way to think about the HSA here too, is when I was younger, I used the HSA and I would just put money in to get the tax deduction. And then I was paying for my kids' braces. You know, or just pull it right back out. You know, yeah, I didn't have the disposable money to be setting it aside, but I had medical that I had to pay for one way or the other, and I wasn't getting a tax deduction. So I was dropping money in the HSA and spending it back out immediately. In my 20s and 30s, I had kids and a family, right? We had medical costs and I was getting the tax deduction. That's level 1 HSA. And I love that. Okay.

Right.

Who doesn't love a tax deduction? You spend the damn money anyways.

Doesn't phase out any age. Well, I should say up until age 65, you can do that all day long.

Yep. Now, Level 2 HSA is what we're talking about here. Get the contribution in, invest it in an asset that's going to grow and build over time. So you have a big pot of money later on in retirement or whatever time you need to draw on that set of funds. You might have a big issue in your life, a big medical expense for you, a spouse, someone in the family, whatever it may be. But also keep in mind the time period you have that HSA. Let's say you're saving in that thing 10 or 20 years and you start saving it in 2025 right now. And now it's 2035 and you've got 10 years of medical and this HSA now is worth $500,000. Well, you might be thinking in 2035, I only have $1,000 of medical, Matt, or $5,000 of medical. How am I even going to draw this thing down? Guys, you got to go back over that 10-year window to pull the money out. Okay? Because you had an HSA over that period of time. You can still reimburse yourself for the expenses in 2026, in 2028. In 2031, we're reimbursing ourselves back. And also what happened over that 10-year window, that money I put in that I got a tax deduction for, I invested it and grew it in a tax-preferred manner, whereas I was earning income and growing that investment, I had to pay no tax, and it's coming back out to me tax-free. It's freaking powerful.

Amen. Man, you got me fired up here. Hallelujah. Hallelujah. Now, we could continue high-fiving talking about the benefits and some nuances. For the next 20 minutes. But I'll say, let's slow the truck down here for a minute and let's do a few technical points. First, how much can you put into your HSA this year? And as Matt said, it is a deduction essentially on the front page of your tax return. I think it flows through Schedule 2 onto the front page. Forgive me, you accountants out there, it could be Schedule 1 at the moment, I'm just thinking. But anyway, it flows in. And the amount this year is $8,550 if you're married or head of household. And if you're single, it is $4,300. Now that's a tax deduction. And I like Matt's point. You could literally put it in and pull it out the next day for a knee surgery. You just generated a tax write-off, which you wouldn't have got otherwise. So that's level 1. So number 2, you have until April 15th to put that money in. So don't stress. You don't have to do this next week. But you know what? I was telling Patty yesterday about your report. Okay, just to digress for a minute. Matt did an analysis that said, because Patty said, when do I have to put my money into my 401(k) to get the write-off this year? And I go, whoa, whoa, whoa. What did you just say? She goes, when do I have to put the money in my 401(k)? And I said, babe, you know what Matt Sorenson would say? He would say, ask yourself, when do I get to put the money into my 401(k)? And Matt said, because you could put money in your 401(k) for 2025 as early as January 1st or up until September 15th, 2026. That's 18 months later.

For the solo.

Yeah, 19 months later. So Matt, what is the result of putting money into your HSA when you can versus when you have to, to get them out of.

This is a great lesson, great point. I'm glad you're bringing this up. Don't think of the deadline of when you should put something in, especially when we're talking about money that can be invested and growing tax-free here, coming out tax-free for your medical. Put money in as soon as you possibly can, because that money is going to start growing and be invested. It's interesting, there was a Fidelity report that they looked at that said the people that have over $1 million in an IRA or 401(k), and they looked at the characteristics of those people and what did they do? One of the things that was the most surprising characteristic is they contributed as early as possible. Once they had the earned income, they contributed. Like January hits, their $7,000 is going in their IRA, their $8,550 is going in their HSA. They're not waiting till next year, April 15th, to drop the money in. You've lost like 16 months of investment growth in a tax-free, for Roth, and tax-free for HSA coming out for medical manner. So you need to change your thinking there. Because we're talking about growing and building wealth in a tax-efficient manner. But for those of you that are late to the game, is a huge tip. You got until April 15th.

Yep. Yep. Now eligibility. So you have until April 15th to do it. You know the number and your AGI doesn't matter at all. You could be— Warren Buffett could do it. Well, he's over age 65 now. Any income level, Elon Musk, Elon Musk could do an HSA contribution. Okay. The next issue is how do I get eligible to do this? Well, the first issue is you have to have a high deductible qualifying plan. Sometimes they're referred to as—

I've got the little high deductible health plan.

Yeah, yeah. There's all these little acronyms out there. The reality is when you get into it technically, though, there's 5 or 6 and there's actually under Obamacare this 10-point checklist of what qualifies as an HSA-qualifying plan. And it's good stuff. It's easy stuff. You know, it's got basic doctor visit protocol and deductible amounts and this and that. But it's generally going to be a high deductible plan. And that's going to be at least $1,650 if you're single or $3,300 if you're married or head of household. Now, that would normally be a high deductible. But again, 80% of people never even tap into their deductible because they don't go to the doctor. So have a reality check. And if you did have a bad situation, you've got the insurance there for it. So point being, November 1st is your open enrollment for any of you entrepreneurs out there. Some of you may have had a different enrollment period with your day job. That's fine. Stand up and go, whoa, whoa, whoa. I want to hide it. I want a qualifying HSA plan. And you get to select that on your little enrollment form. But for you entrepreneurs out there, between November 1st and January 15th, you've got to— you got a choice. And I would recommend that you choose that qualifying plan.

Here's another thing to keep in mind. If we're talking about a 2025 contribution, you need a high deductible health plan for 2025.

Yeah.

Okay. So we're talking about getting that contribution in now. There is something called the— there's like the last month rule.

Okay.

For any of you that may have been switching plans, maybe you had a change of employer or a cause where you've changed plans through the year.

Good call.

There is something called the last month rule that says if you've moved to a high deductible plan, as long as you did it before December 1st, 2025, you can get contributions in for the full amount of the year. You don't have to prorate it. There's some proration rule. But if you, if this is a new plan and you get it set up again before December 1st, you can still make the full $8,550 family or $4,300 single contribution for 2025.

That's a great point. And that, by the, many of you listening to this are going to have well over 30 days to jump on that. And you might be able to make a transition. And if, for those of you that have your healthcare through an employer, call HR. Say, hey, can I change my plan? You know, what is it? Well, it's going to cost you $100 or it's going to cost you— I don't care. Get me in there. And I want that plan effective before December 1st and unlock this write-off. Okay. A couple other technical points. If you're age 55 to 65, you can put in $1,000 more. And under the One Big Beautiful Bill, they changed that provision because you had to have individual plans to do that. Now, if you're in a married plan, it says if we're both over 55, you don't have to have single plans to do it. Yeah.

And you're going to put $2,000 in.

Yep.

$2,000. 'Cause that used to be a strategy when we'd say, well, when you're both over 55, let's both do individual plans 'cause you both get the $1,000. And that was kind of clunky. So the One Big Beautiful Bill fixed that. So you can just go family, but you get the extra $2,000 now. So it adds up to be just the same.

See, again, guys, that's $10,550 as a couple to put away for future healthcare. And again, you start doing the math on that of, a 10 or 15% return, or XRP from last year, a 300% return, which is insane. But for you Bitcoin believers out there, you may say, you know what, $10,000? You're popping $10,000 into Bitcoin every year anyway, at least if you're a Bitcoin believer. Do it in your HSA. Yeah, just let it ride there. Let it ride. Yeah. But once you turn to age 65, you can't do new contributions, but you can continue to invest, use that HSA ATM all you want. But once you have Medicare, you can't put new contributions in. That's it. I mean, technically, I can't think of anything else that's real earth-shattering.

Yeah, I mean, that's the HSA. Keep in mind, there's different HSA accounts out there. There's like the bank that will set up your HSA, or maybe your employer where you work is like, we have an HSA partner we provide, and you're freaking putting your money in a savings account and you're getting nothing on it. By the way, if you have an employer that funds an HSA, you could move that HSA balance to any HSA provider. You can move it to Fidelity, you can move it here to Directed IRA to do these alternative assets we've talked about, whether that's real estate or a startup or crypto or oil and gas, whatever you're into. I mean, these are things that your HSA can invest in and own here at Directed IRA. And so, so you've got the kind of the bank, you got the broker-dealers out there that'll let you buy stock, and then you got the self-directed HSA, which is what we do and offer. Or you have open architecture, invest in everywhere you want, buy a mutual fund if you want here and you don't know what to do, invest in crypto, like Mark said, if as an example, if that's what you're in and you believe in and you're investing in anyways, why not do it in a tax-free manner that's going to pay for your medical over your lifetime? So, um, huge opportunity here to utilize this account. We want to make sure more and more people have knowledge about this, how powerful it can be and how you can grow it over time.

Love it. Now, um, let's go through steps for a moment. And I want to clarify something again. You don't set up your HSA with your health insurance company. They're two different things. So just make sure you have the health insurance. In fact, when you make your application to open an HSA at Directed IRA, we have one little box. Do you have a qualifying healthcare plan? Yes. Done. We don't need a copy of it. We're not the, you know, health insurance police. We're not sending someone out to look at your plan. I don't need to see your healthcare card, whatever the hell. You're checking a box. I have a qualifying plan. The end. So anyway, step 1, make sure you have the right insurance. Step 2, you would then go open your HSA at these different options that Matt just talked about. If you come to Directed IRA, I'd like to point out you have really 2 avenues. We have a crypto HSA, so you can immediately have an app on your phone at Gemini within 48 hours. You're buying crypto if you want. Option 2 is you set up a generally self-directed HSA, which we just did. The panels at All Assets Summit were insane. These guys that have been doing real estate deals inside their Roth IRAs, who started with $5,000 in an HSA, I mean, in a Roth IRA, and then blew 'em up to over $10 million and more. It was an incredible panel.

One over $100 million.

Yeah, it was nuts. So don't feel like you have to have a lot of money to get some inertia. Going, get the HSA opened in a standard self-directed HSA, make it a partner in your next real estate deal, put it in an LLC with your family's other HSAs. You can, again, invest in anything you feel excited about and comfortable with. And that's it. You're off to the races. I guess there was a step of funding it. So you open the account, put the money in, and then you're off to the races. Patty and I took our two HSAs and formed an LLC called Kohler Brick Cattle Company. And you can go to the website, KohlerBrettCattle.com, and we have 20 cows for sale. No, no, no. We have 23 in the herd. We're only selling about 9 grass-fed, hormone-free Maha cows in our Utah ranch this coming spring. And our HSA owns the whole herd and we put them on another rancher's property. So it's not prohibited. And I don't go out and feed the cows. I mean, what's wrong? I have fun, you know, petting them.

Yeah, yeah.

I can only pet one.

You're adding zero value when you do that.

Oh yeah, I probably detract from the operation.

Yeah. So there are some rules called prohibited transaction rules when you're buying real estate or other alternative assets where you— how much you can be involved with the asset. So we've got— this is what the Direct IRA podcast is all about. We got lots of education and training if you're new to that topic. So, but yeah, I mean, I think the big takeaway here is it's open enrollment time. If you're watching this as this video is coming out new, it's a great time to be thinking about, should I be moving to an HSA-qualifying plan? How does the HSA actually work? How does this benefit me today? Guys, you're saving money on taxes now. You're investing in a tax-preferred manner, and you can invest in the things that you know and believe in. We're not just talking about putting in a savings account, getting nothing, or investing in the stock market, which you may be already overallocated to.

We could even do gold.

You could buy precious metals.

We had a great speaker. That guy was smart.

Yes, he was very smart. And we've been seeing a lot more clients investing in gold. Gold's been on a run, of course, right? It's over. $4,300 an ounce now for gold. That's outperformed the stock market. So, so, but that's the thing here. It's like, we're not telling you what to invest in. We're throwing out all these different things. We're just saying whatever you know and believe in, right? This is you, your retirement account and health savings account that you decide how to invest and you're the one benefiting from it in the end.

Okay. One last technical point I'll say is once the account is up and going, let's say you build it and you want the money out, you would sell whatever portion of that investment was in the HSA account, whatever, bring it back to US dollars, and then you would say, "I want to make a withdrawal." And this is where the bank HSAs of the world make it easy. They might give you like an HSA Visa and things like that. Here at Directed IRA, you would say, "I want to make a withdrawal," and you'd fill out a form. It's all on the website in your portal. And you'd say, and we don't need to see your healthcare receipts. You just total 'em up and say, "This is my reimbursement amount.", and we freaking ACHA the money, essentially. You can request it different ways. Now, here's what you can do. If you're in a married plan, you can pull out any expense for either of your medical costs. Go to IRS Publication 502. It'll tell you all the things that are allowed. It'll blow your mind so much. If you're head of household, single mom, single dad, any of your kids that are dependents of yours, you can pay for their medical too. That's great. But once your kids are not dependents anymore, they can open their own damn HSA. Sorry, did I say the word damn? Okay, so help them open their own HSA. But while they're dependents, it's a family HSA. Keep that concept out there. And then once they are off your tax return, they can open their own. And I guess again, that's— it's really— it's self-managed.

And by the way, you can say damn all you want when you're on the damn tour and I'm your damn tour guide. Oh yeah, that's right. You know, you can say that all you want.

Yeah, that's right. The Idaho Dam Race every year from the Teton Dam.

That's another one.

That's a good one.

Wasn't that like a National Lampoon's— I think it was like Vegas Vacation where they go on the dam tour with the damn tour guide? That's Hoover Dam.

Oh, that was awesome. Well, thanks everybody for listening today. We hope this has again expanded your knowledge to help you better live your American dream. Grateful that you're here, a part of this podcast. Please share it with your friends and family. Help them catch the dream of self-directing as well. And don't forget our sister podcast, the Main Street Business where we go deep on all of these small business tax strategies. The HSA is this fun one that kind of lives in both worlds. So we are excited for this podcast today, but see you next week. Give us a 5-star, thumbs up, high five, whatever, and appreciate you. And we'll see you next week. And thank you everyone for listening. A quick disclaimer and reminder: this presentation does not constitute an attorney or CPA client relationship. Relationship, and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions.

We also want to make sure you know this is not investment advice or financial advice. We're just trying to give you education, ideas, and strategies you can take to your professionals or conduct your own research on. We'll see you next time.