Mark Kohler explains how health savings accounts work as retirement vehicles, covering when you can withdraw money, whether you can hold multiple HSAs, and how they compare to Roth IRAs. He addresses common misconceptions and discusses how HSAs interact with other retirement strategies like backdoor Roths.
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For those of you that have a health savings account or have thought about building one up, these are phenomenal. Of course, think of it like a Roth IRA on steroids, but just for health care. The reason why it's on steroids is you get a tax deduction going in and you can pull it out at any age, tax free and penalty free as long as it's for medical. So, I mean, it's just like the best of all, it's savings worlds. And Matt and I will often debate what's better, the HSA or the Roth. And it's a close tie at times. It depends on the person and what their situation is. So they're very, very valuable to have in your arsenal or your toolbox, if you will. So once you've got that money in there, let me share a couple of my takes on it. I know we both have HSAs. The first thing is you need to know you don't have to take the money out and reimburse yourself. That's. Some people think, oh, now that I have this hsa, I've got to reimburse myself. No, in fact, if you're doing okay and you have the financial wherewithal, let the money ride. I don't know if that's a craps thing. It's something in Vegas. Let it ride. I don't know, I'm terrible at crafts and I just watch and lose money. But yeah, just let the HSA snowball and grow for when you really need it because you could have a larger expense or you don't have the income to cover a medical expense. So don't feel like you're required to, to pull money out of your hsa. The other misconception I'll just mention too quickly, and I know you've got a couple, is that, well, I can only have one HSA or I have one at work and it's. I really don't use it, so I don't get the full benefit. Oh, no, no. You can have two or three HSAs. Now. Your annual contribution total is the same. And your employer might be putting in X dollars for you, but you can open up an HSA on the side, control it self directed at. Directed Ira here at our office. You can open up an HSA tonight online, start putting money into it. You could buy real estate, crypto, stocks, investments, notes, pool it with other clients, LLCs, and do a lot with that HSA so you can have multiple HSAs. Don't feel held back by your employer's HSA restrictions. So I don't know. Those are a couple common ones. What else do you see out there?
Well, just yesterday I had a question from someone about taking the deduction for the hsa. And can you take it if you have a certain AGI or your high income? Nice thing about the HSA is no matter what your income, you could be a billionaire making a million billion bucks a year, you still get to take the HSA deduction. So there's no phase out for high income people. There is on some other things, of course, in the tax code. But for the hsa, any income, you still get the deduction.
Love it. Okay, the last misconception is that I cannot do an HRA, which is a reimbursement arrangement, a 105 plan, if I have an HSA. And the truth is you can do both, but you cannot double dip on an expense. So let's say you go to the doctor and they prescribe something at the local pharmacy, the grocery store. You go in, you get it, and your insurance did a crappy job. You know, maybe it was a couple hundred dollars and you're like, well, you have options. One, you could take it out of your hsa and depending on your HSA portal or the, I guess the trust company or brokerage or bank or whoever manages your hsa, you would turn in the receipt and they'd send you $200. Or you could just let it ride. You could also, over on the side, have that HRA plan where through a sole proprietorship or a C corp, you've got a little plan that's a chapter in my book here, where you're reimbursing yourself for the $200 and taking a business write off. Meanwhile, you're still funding your hsa, so you can, you can really get strategic with that. So the beauty here is, I guess the best big takeaway is don't feel restricted. There's lots of options and you can let that money grow, which is, I think, a misnomer. So, yeah, I love it.
Yeah, it's. I mean, I got nothing more to add to that. Okay, this is one of my favorite common questions. And this came from Ally, also on Main Street Business podcast page. And this is, this is a question that comes when you start learning a little bit about Roth IRAs, but you don't learn the full story on it. And this is sad because a lot of people get stuck at this question that Ali is asking. Ali asks about Roth IRAs. If one makes over $152,000 salary threshold, how can he contribute yearly to his Roth ira. Great question, Ali. You're not going to contribute directly to a Roth ira. You're going to do a backdoor Roth ira, which at the end of the day is the same thing. You just got to go about it a different way. The backdoor Roth IRA is, is basically where you can contribute to a traditional IRA and what's called a non deductible contribution, no income restrictions. To do that, you then convert that non deductible traditional contribution over to Roth. No income restrictions there either. Now at the end of the day, you've got a Roth IRA, which you could do 6,500 bucks a year, which is the regular Roth IRA. Contribution limits. So we're getting around this. This is called the backdoor Roth IRA by doing a two step contribution conversion process to get to the same result. So don't think you're out of the, out of the game here on the Roth ira. You're still in the game. You just got to go through the back door to get in.
I love it. I thought it was a party, but
it's a game, It's a game, it's a party, you know, whatever you want to be.
