1 00:00:00,040 --> 00:00:02,120 Hi, I'm Ed Slott and I'm Jeff Levine. 2 00:00:02,510 --> 00:00:06,119 And we're two guys who just love to talk about retirement and taxes. 3 00:00:06,160 --> 00:00:10,039 Look, our mission is simple to educate you, the saver, so that you can make 4 00:00:10,090 --> 00:00:14,170 better decisions because better decisions on the whole lead to better outcomes. 5 00:00:14,210 --> 00:00:15,830 And here's how we're going to do that. 6 00:00:15,929 --> 00:00:20,040 Each week, Jeff and I will debate the pros and the cons of a particular 7 00:00:20,040 --> 00:00:21,939 retirement strategy or topic. 8 00:00:22,300 --> 00:00:25,950 With the goal of helping you keep more of your hard earned money. 9 00:00:26,030 --> 00:00:29,270 At the end of each debate, there's going to be one clear winner. 10 00:00:29,520 --> 00:00:33,160 You, a more informed saver who can hopefully apply the merits of 11 00:00:33,160 --> 00:00:36,280 each side of the debate to your own personal situation to decide 12 00:00:36,290 --> 00:00:38,199 what's best for you and your family. 13 00:00:38,229 --> 00:00:41,380 So here we go, welcome to the Great Retirement Debate. 14 00:00:43,050 --> 00:00:46,320 Ed, you think that most people are good with money or bad with money? 15 00:00:47,690 --> 00:00:50,530 Uh, a little of both, but probably most people are bad with money. 16 00:00:50,590 --> 00:00:50,890 Alright. 17 00:00:51,430 --> 00:00:54,980 I think that's probably true, and I think it's especially true with HSAs. 18 00:00:55,010 --> 00:00:57,059 What if I told you that What's an HSA? 19 00:00:57,110 --> 00:00:58,760 A Health Savings Account. 20 00:00:58,790 --> 00:00:59,300 Alright. 21 00:00:59,619 --> 00:01:02,750 Uh, for most people, what effectively becomes a slush 22 00:01:02,760 --> 00:01:04,670 fund for their medical expenses. 23 00:01:04,670 --> 00:01:06,789 And actually, it's one of the things we're going to talk about today. 24 00:01:06,969 --> 00:01:12,470 What if I told you that nearly 90 percent of people weren't using HSAs efficiently? 25 00:01:12,470 --> 00:01:13,110 Would you believe that? 26 00:01:13,110 --> 00:01:13,199 I would. 27 00:01:13,680 --> 00:01:15,780 Uh, I guess if you say so, I believe it. 28 00:01:15,780 --> 00:01:16,080 That's it. 29 00:01:16,080 --> 00:01:16,740 I'm not a liar. 30 00:01:16,740 --> 00:01:16,950 Right? 31 00:01:17,040 --> 00:01:17,880 ? Actually, it's true. 32 00:01:18,060 --> 00:01:21,600 Uh, according to an ERE study, that's the Employee Benefit Research Institute, 33 00:01:21,930 --> 00:01:28,320 uh, about 90% of individuals in their HSAs keep those dollars only in cash. 34 00:01:28,710 --> 00:01:33,300 Now, uh, you know, one of the biggest benefits of the HSA is the fact 35 00:01:33,300 --> 00:01:36,870 that there's tax free distributions for qualified healthcare expenses, 36 00:01:36,870 --> 00:01:40,980 which means if you invest the HSA and you let it grow over time. 37 00:01:41,500 --> 00:01:45,030 That growth can be used tax free to pay for your qualified medical expenses. 38 00:01:45,260 --> 00:01:47,060 And you get a deduction on the way in. 39 00:01:47,150 --> 00:01:47,540 That's right. 40 00:01:47,540 --> 00:01:48,870 In fact, the HSA Triple tax. 41 00:01:48,890 --> 00:01:49,370 Yes. 42 00:01:49,580 --> 00:01:51,949 In fact, you know, a lot of people say triple tax. 43 00:01:51,980 --> 00:01:52,809 I don't even like that. 44 00:01:53,270 --> 00:01:55,820 I think for a lot of people we should talk about quadruple tax. 45 00:01:55,870 --> 00:01:56,270 All right. 46 00:01:56,470 --> 00:01:57,670 I know the first three. 47 00:01:57,680 --> 00:01:57,890 All right. 48 00:01:57,890 --> 00:01:58,450 What are the first three? 49 00:01:58,450 --> 00:02:02,390 Well, obviously the deduct we just talked about them the deduction on the way in 50 00:02:02,390 --> 00:02:06,260 Yep the tax by the way No matter how much income you make something that's 51 00:02:06,260 --> 00:02:09,970 different between that and a lot of other like your ira contribution deduction 52 00:02:09,970 --> 00:02:13,726 No matter how much money you make You cannot be phased out of an HSA deduction. 53 00:02:13,726 --> 00:02:15,500 Sounds like a good deal if you got a lot of money. 54 00:02:15,530 --> 00:02:16,190 Not too bad. 55 00:02:16,190 --> 00:02:17,030 All right, so that's one. 56 00:02:17,250 --> 00:02:19,810 All right, the tax deferred growth in the account. 57 00:02:19,819 --> 00:02:20,470 Definitely number two. 58 00:02:20,470 --> 00:02:22,960 And the other one you just talked about, if you pay qualifying 59 00:02:22,970 --> 00:02:24,750 medical expenses, tax free. 60 00:02:24,790 --> 00:02:25,609 That is, that's three. 61 00:02:25,609 --> 00:02:26,820 So there's the fourth one. 62 00:02:27,185 --> 00:02:32,425 For a lot of people who have access to an HSA via their employer, if they make those 63 00:02:32,475 --> 00:02:37,055 HSA contributions as a payroll deduction through something called a Section 125 64 00:02:37,105 --> 00:02:42,175 Cafeteria Plan, that's basically the a la carte version of employee benefits, right? 65 00:02:42,185 --> 00:02:44,184 I want a little bit of this, a little bit of that. 66 00:02:44,465 --> 00:02:47,085 It's kind of where it gets its name, cafeteria plan, you know, a little 67 00:02:47,085 --> 00:02:48,195 bit of this, a little bit of that. 68 00:02:48,605 --> 00:02:54,485 Those contributions not only reduce income tax, but they also lower employment 69 00:02:54,485 --> 00:02:56,164 taxes, like social security taxes. 70 00:02:56,164 --> 00:02:56,785 And medicare. 71 00:02:56,855 --> 00:02:58,075 And medicare, exactly. 72 00:02:58,075 --> 00:03:02,644 So, the HSA can actually be quadruple tax benefit for a lot of folks. 73 00:03:02,645 --> 00:03:05,885 But, uh, You know, while people are working, they should be contributing 74 00:03:05,885 --> 00:03:06,965 to the accounts if they can. 75 00:03:06,965 --> 00:03:12,154 In fact, because the HSA is triple tax free or triple tax benefit, I should 76 00:03:12,155 --> 00:03:14,515 say, uh, and in some cases quadruple. 77 00:03:15,215 --> 00:03:18,605 In general, it should be the place where people put their first dollars 78 00:03:18,605 --> 00:03:20,435 of savings each and every year. 79 00:03:20,575 --> 00:03:21,685 You mean some people don't? 80 00:03:21,745 --> 00:03:23,275 I, uh, I've heard that, yes. 81 00:03:23,555 --> 00:03:24,945 I'm looking at one of our producers here. 82 00:03:24,945 --> 00:03:26,684 We had a little conversation before we started. 83 00:03:26,755 --> 00:03:28,554 And he said, what did he say? 84 00:03:28,565 --> 00:03:32,565 He said he has money in his 401k, but not his HSA, and I said, uh, 85 00:03:32,574 --> 00:03:33,845 he said, why would you do that? 86 00:03:33,845 --> 00:03:35,545 And he said, well, isn't that the place where we start? 87 00:03:35,545 --> 00:03:38,525 And I said, well, that's why we're having this podcast, you know? 88 00:03:38,525 --> 00:03:39,214 Right, right. 89 00:03:39,214 --> 00:03:39,485 That's right. 90 00:03:39,485 --> 00:03:41,635 So, uh, The very first thing that you should be doing. 91 00:03:41,635 --> 00:03:44,275 I might even correct him on something totally unrelated. 92 00:03:44,435 --> 00:03:48,775 Why is a young person, this guy, putting money in a 401k? 93 00:03:48,785 --> 00:03:50,575 Let's keep talking about him as if he's not in the room with us. 94 00:03:50,585 --> 00:03:50,825 Yeah. 95 00:03:50,825 --> 00:03:51,165 That's good. 96 00:03:51,165 --> 00:03:52,125 All right. 97 00:03:52,615 --> 00:03:52,915 Roth. 98 00:03:52,955 --> 00:03:53,845 You should go Roth. 99 00:03:54,485 --> 00:03:55,724 Roth 401k. 100 00:03:55,735 --> 00:03:57,124 Build tax free while you're young. 101 00:03:57,385 --> 00:03:57,784 There we go. 102 00:03:57,785 --> 00:04:00,255 Look, this is a podcast for one, ladies and gentlemen. 103 00:04:00,255 --> 00:04:00,515 All right. 104 00:04:00,955 --> 00:04:01,825 An audience of one. 105 00:04:01,865 --> 00:04:02,485 That's right. 106 00:04:02,505 --> 00:04:03,275 An audience of one. 107 00:04:03,275 --> 00:04:03,725 There you go. 108 00:04:04,085 --> 00:04:04,495 Hopefully. 109 00:04:04,715 --> 00:04:05,295 Maybe we'll get two. 110 00:04:05,295 --> 00:04:06,085 We'll double our audience. 111 00:04:06,125 --> 00:04:06,334 All right. 112 00:04:06,515 --> 00:04:07,764 So here's the deal, right? 113 00:04:07,764 --> 00:04:10,515 Once HSAs are, are, are unique. 114 00:04:10,815 --> 00:04:13,125 Um, different from any other type of account. 115 00:04:13,135 --> 00:04:16,915 You know, normally when we think about things like a 529, that's usually the 116 00:04:16,915 --> 00:04:20,984 account that people compare it to because it's a tax preference account for a 117 00:04:20,985 --> 00:04:23,835 very specified type of expense, right? 118 00:04:23,905 --> 00:04:27,125 And you might say retirement account, but retirement account, once you hit a 119 00:04:27,134 --> 00:04:31,815 certain age, you can use it for anything, but 529s are for education expenses. 120 00:04:32,815 --> 00:04:35,885 If, uh, if you have an, a healthcare savings account. 121 00:04:36,355 --> 00:04:43,005 you can reimburse yourself for previous, uh, previously incurred medical expenses. 122 00:04:43,015 --> 00:04:46,055 As long as you haven't taken them out to date with a 529 123 00:04:46,065 --> 00:04:49,615 plan, expense and distribution have to align in the same year. 124 00:04:49,615 --> 00:04:53,935 That's not true for HSAs, which means what you should really be doing for the 125 00:04:53,935 --> 00:04:57,315 most part is putting away your whatever, three, four or five thousand, whatever 126 00:04:57,375 --> 00:04:59,115 you can put into the HSA each year. 127 00:04:59,585 --> 00:05:04,440 And if you have the ability to do so, Let it grow and pay any current medical 128 00:05:04,440 --> 00:05:08,870 expenses out of out, you know, out of pocket, so to speak, because if you 129 00:05:08,870 --> 00:05:15,620 put in 5, 000 today to your HSA and it grows to let's say 30, 000 over 130 00:05:15,620 --> 00:05:18,530 the next Let's call it five years. 131 00:05:18,890 --> 00:05:23,920 If each of the next five years, you had 6, 000 of unreimbursed medical expenses, 132 00:05:23,930 --> 00:05:25,730 that's six times five is 30, 000. 133 00:05:25,730 --> 00:05:29,830 Well, lo and behold, in five years, your 30, 000 can come out 134 00:05:29,830 --> 00:05:31,780 completely tax and penalty free. 135 00:05:31,890 --> 00:05:33,130 So the government is paying. 136 00:05:33,270 --> 00:05:35,180 The cost of your healthcare, essentially. 137 00:05:35,190 --> 00:05:39,780 Yeah, it's a, it's one of the unique features of HSAs and it's why, you 138 00:05:39,780 --> 00:05:43,070 know, when we talk about 90 percent of people, according to that research 139 00:05:43,070 --> 00:05:46,630 study from, uh, EBRI, which we can include a link to within show notes 140 00:05:46,630 --> 00:05:49,820 or something like that so people can look at the study themselves, but 141 00:05:49,989 --> 00:05:54,000 90 percent of people putting this money in cash, cash doesn't grow like 142 00:05:54,020 --> 00:05:58,370 other assets over time, which means you're not using your HSA efficiently. 143 00:05:58,370 --> 00:05:58,770 I get it. 144 00:05:58,770 --> 00:06:02,940 If you're tight on funds and you've only got, you know, uh, you know, your 145 00:06:05,370 --> 00:06:08,950 You may want to put money into your HSA, at least get the deduction, and then 146 00:06:08,950 --> 00:06:10,599 use that money for medical expenses. 147 00:06:10,599 --> 00:06:15,030 But to the extent you have the available cash flow, your medical expenses, 148 00:06:15,030 --> 00:06:19,309 at least while you're young, should be paid from other sources to let 149 00:06:19,319 --> 00:06:21,619 that HSA grow tax and penalty free. 150 00:06:21,620 --> 00:06:23,599 It effectively becomes like another Roth IRA. 151 00:06:23,879 --> 00:06:24,259 Right. 152 00:06:24,329 --> 00:06:27,289 Because you've had a lifetime's worth of medical expenses to accumulate. 153 00:06:28,145 --> 00:06:33,395 Well, not exactly, uh, like a Roth IRA because you have to, to get the third 154 00:06:33,405 --> 00:06:38,455 benefit, getting it out, uh, tax free, you have to use it for qualified expenses. 155 00:06:38,484 --> 00:06:38,854 That's right. 156 00:06:38,854 --> 00:06:42,094 It does have to be used for qualified medical expenses, but as people age, 157 00:06:42,405 --> 00:06:43,694 they tend to have medical expenses. 158 00:06:43,694 --> 00:06:44,734 So, I mean, if we think about this. 159 00:06:44,734 --> 00:06:46,005 That's a pretty good bet. 160 00:06:46,044 --> 00:06:46,584 Yes. 161 00:06:46,874 --> 00:06:47,134 Yes. 162 00:06:47,154 --> 00:06:49,354 I would take the long on that for sure. 163 00:06:49,544 --> 00:06:53,294 So, so that brings us to the, the real focus of today's discussion, 164 00:06:53,294 --> 00:06:59,225 Ed, which is when should individuals Use their HSA during retirement. 165 00:06:59,465 --> 00:07:03,315 Now, we're really focused on the when here, so I think it's actually 166 00:07:03,355 --> 00:07:06,345 worth noting, you know, we talked about what happens with your HSA 167 00:07:06,345 --> 00:07:07,845 during life and how this works. 168 00:07:08,235 --> 00:07:11,075 Uh, we should talk about HSAs, I think, a little bit at death as well. 169 00:07:11,940 --> 00:07:15,760 Well, that's where, the way I understand it, it's, it's not that 170 00:07:15,760 --> 00:07:19,760 great tax wise because beneficiaries have to take the whole shebang and 171 00:07:19,760 --> 00:07:21,509 they get hit on that all at once. 172 00:07:21,539 --> 00:07:22,499 That's exactly right. 173 00:07:22,510 --> 00:07:25,609 So, we, we really actually, if we want to be more specific, we've got to look 174 00:07:25,609 --> 00:07:27,450 at two different types of beneficiaries. 175 00:07:27,459 --> 00:07:27,639 Right. 176 00:07:27,639 --> 00:07:28,399 Right, a spouse. 177 00:07:28,880 --> 00:07:31,400 And everyone or everything else. 178 00:07:31,539 --> 00:07:34,849 Well it's kind of like with the IRA, the spouse has special privileges. 179 00:07:35,219 --> 00:07:39,780 Uh, but after that, that's why you have to manage how, how much you build it up. 180 00:07:39,799 --> 00:07:40,640 Yes, that's true. 181 00:07:40,650 --> 00:07:40,919 Yep. 182 00:07:40,960 --> 00:07:44,080 Which I, kind of, you're, you're, you're getting to, you're hitting on 183 00:07:44,080 --> 00:07:46,500 exactly, I think, some of the things that we're going to need to expand on 184 00:07:46,729 --> 00:07:50,270 to make sure our listeners, uh, Uh, are really understanding how to think 185 00:07:50,270 --> 00:07:53,740 about using their HSAs most efficiently over the course of their retirement. 186 00:07:54,020 --> 00:07:57,010 But just to reiterate, right, at death there's these two possibilities. 187 00:07:57,010 --> 00:08:00,500 Either you're the spouse beneficiary or you're anyone or anything else. 188 00:08:00,520 --> 00:08:01,800 If you're a spouse. 189 00:08:02,275 --> 00:08:06,925 then effectively the moment the person with the HSA dies, the spouse is the 190 00:08:06,925 --> 00:08:09,045 owner of that HSA instantaneously. 191 00:08:09,045 --> 00:08:11,755 Like there's in retirement accounts, you've got options. 192 00:08:11,755 --> 00:08:13,415 Do we want to remain a beneficiary? 193 00:08:13,875 --> 00:08:17,014 It's basically like a spousal rollover except it's treated 194 00:08:17,014 --> 00:08:18,255 that way instantaneously. 195 00:08:18,630 --> 00:08:18,870 Yeah. 196 00:08:18,900 --> 00:08:22,340 If it's any other beneficiary, I think you used the words, The whole shebang. 197 00:08:22,350 --> 00:08:23,200 Well, that's true. 198 00:08:23,490 --> 00:08:27,080 The whole shebang becomes taxable immediately. 199 00:08:27,219 --> 00:08:28,669 Right away. 200 00:08:28,909 --> 00:08:31,269 And there is no, uh, No way to stretch it out. 201 00:08:31,269 --> 00:08:31,650 That's right. 202 00:08:31,650 --> 00:08:33,119 There's no, it's the year of death. 203 00:08:33,150 --> 00:08:35,439 It becomes immediately taxable to the beneficiary. 204 00:08:35,460 --> 00:08:37,520 Now, But remember, there's still a beneficiary. 205 00:08:37,549 --> 00:08:37,890 That's right. 206 00:08:37,890 --> 00:08:40,960 They're still getting money that they weren't, they didn't have elsewhere. 207 00:08:40,960 --> 00:08:44,700 Now, there is, You know, not really relevant for our discussion today, but 208 00:08:44,700 --> 00:08:48,280 I would be remiss if I didn't insert a little bit of a planning nugget here. 209 00:08:48,570 --> 00:08:51,930 There's one exception to this rule where the beneficiaries, well, 210 00:08:51,970 --> 00:08:54,820 it's not even an exception, but one interesting thing you can do. 211 00:08:55,110 --> 00:08:58,849 Normally, if you leave the HSA outright to an individual, let's 212 00:08:58,850 --> 00:09:02,770 say a child, the child will pick up that income on their own tax return. 213 00:09:03,199 --> 00:09:08,129 By contrast, if you name your will or your estate the beneficiary of your HSA, 214 00:09:08,410 --> 00:09:12,420 which you would almost never, ever do for a retirement account, but there's actually 215 00:09:12,420 --> 00:09:14,669 a potential advantage on the HSA side. 216 00:09:14,949 --> 00:09:19,719 If your will or the estate is the beneficiary, then that HSA becomes 217 00:09:19,719 --> 00:09:22,639 taxable on your final tax return. 218 00:09:22,639 --> 00:09:26,295 So if you're at a lower tax bracket than, say, your beneficiary, You 219 00:09:26,295 --> 00:09:29,285 know, maybe you're 80, 85, you're not working, your income in retirement is 220 00:09:29,295 --> 00:09:33,475 lower than your child who's 50 or 55 or 60, maybe they're still working. 221 00:09:33,795 --> 00:09:36,264 You might leave it to your will. 222 00:09:36,660 --> 00:09:42,110 Pay tax on it at your own rate and then have the proceeds at or after tax 223 00:09:42,110 --> 00:09:46,620 be distributed through your estate To the you know to your child anyway, so 224 00:09:46,620 --> 00:09:49,990 they'll get the money but having paid tax at your rate versus theirs, right? 225 00:09:50,320 --> 00:09:54,249 Let me ask you that I'm not sure about this, but if you do it that way Yep, and 226 00:09:54,249 --> 00:10:00,224 there are still unpaid medical bills at death Can any of that be used for that? 227 00:10:00,295 --> 00:10:01,384 It's a really good question. 228 00:10:01,405 --> 00:10:07,624 All right, so the, the way that it works with the HSA is that what we 229 00:10:07,624 --> 00:10:09,454 know for certain is that year of death. 230 00:10:09,464 --> 00:10:10,254 Yeah, exactly. 231 00:10:10,265 --> 00:10:13,924 So, so, so you have, you have a one year, you can pay medical expenses 232 00:10:13,924 --> 00:10:18,684 for the previous year and those distributions, if paid by the beneficiary 233 00:10:18,684 --> 00:10:20,525 will be tax free for the decedents. 234 00:10:20,939 --> 00:10:21,740 medical expenses. 235 00:10:21,740 --> 00:10:25,430 In other words, if dad dies and dad had some medical bills before he died that 236 00:10:25,699 --> 00:10:30,639 hadn't yet been paid but need to be, the beneficiaries of the HSA can pay 237 00:10:30,639 --> 00:10:32,879 those expenses tax free within a year. 238 00:10:33,160 --> 00:10:34,510 If they don't, then it's taxable. 239 00:10:34,849 --> 00:10:39,010 But it's important, and this is kind of, it leads into the second issue. 240 00:10:39,450 --> 00:10:43,824 What is not clear, however, what the IRS has never Uh, the one thing 241 00:10:43,825 --> 00:10:47,704 that's not perfectly clarified is what happens to an HSA, uh, the 242 00:10:47,715 --> 00:10:52,064 built up tax free accumulation that you can repay yourself if you will. 243 00:10:52,064 --> 00:10:56,644 Like all your previous unreimbursed medical expenses, does that transfer 244 00:10:56,975 --> 00:10:58,615 if you will to a beneficiary? 245 00:10:58,975 --> 00:11:02,155 And it would seem that at least if we're talking about a non 246 00:11:02,155 --> 00:11:04,515 spouse, the answer is probably no. 247 00:11:04,930 --> 00:11:07,920 So, effectively, right, to, to make this a little bit clearer, to 248 00:11:07,920 --> 00:11:09,479 give an example here, so everybody. 249 00:11:09,480 --> 00:11:12,050 Because that's opposite what you just said on the other scenario. 250 00:11:12,109 --> 00:11:12,669 Correct. 251 00:11:12,669 --> 00:11:13,169 Exactly. 252 00:11:13,169 --> 00:11:16,239 So, let's make sure everybody, uh, you know, listening follows along this. 253 00:11:16,249 --> 00:11:20,530 Let's say, let's just say you had put in over the years 20, 000 worth 254 00:11:20,560 --> 00:11:26,040 of HSA contributions and that over the course of your life, that 20, 255 00:11:26,040 --> 00:11:28,614 000 had grown to be worth 100, 000. 256 00:11:29,095 --> 00:11:29,295 Right. 257 00:11:29,325 --> 00:11:33,445 And let's say that over, you know, a, a 30 year period from the time 258 00:11:33,445 --> 00:11:38,365 you started your HSA to the time you died, you had accumulated 100, 000 259 00:11:38,375 --> 00:11:40,015 of unreimbursed medical expenses. 260 00:11:40,015 --> 00:11:42,935 You had paid these dollars out of pocket all these years. 261 00:11:43,345 --> 00:11:46,475 Well, if that's the case, then you could turn around and take that 262 00:11:46,475 --> 00:11:49,185 100, 000, 100 percent tax free. 263 00:11:49,185 --> 00:11:50,275 Who's you when you're talking? 264 00:11:50,325 --> 00:11:52,375 The, the, the person during their lifetime, right? 265 00:11:52,575 --> 00:11:58,195 The, the original HSA owner could turn around and take that 100, 000 out 100 266 00:11:58,195 --> 00:12:00,374 percent tax free before they died. 267 00:12:01,005 --> 00:12:06,085 However, if they died having not taken that distribution first, 268 00:12:06,635 --> 00:12:09,664 it at least appears, at the very least it's gray, but I would say 269 00:12:09,664 --> 00:12:14,275 it appears that the beneficiary, pays tax on the full 100, 000. 270 00:12:14,575 --> 00:12:18,725 Whereas if, you know, the original HSA owner, the moment before they died, right? 271 00:12:18,725 --> 00:12:21,395 Like their last act as a human being on the face of this earth 272 00:12:21,545 --> 00:12:23,185 was to make sure that's right. 273 00:12:23,194 --> 00:12:24,205 Somebody grabbed their arm. 274 00:12:25,545 --> 00:12:25,765 Yeah. 275 00:12:25,765 --> 00:12:26,024 That's it. 276 00:12:26,035 --> 00:12:28,715 Somebody grabbed the arm and grabbed the HSA distribution, you 277 00:12:28,715 --> 00:12:30,085 know, form and said, take it out. 278 00:12:30,354 --> 00:12:34,465 It would have been tax free could then be left to the kids tax free that way. 279 00:12:34,885 --> 00:12:37,725 It appears that goes away when it's a non spouse. 280 00:12:37,975 --> 00:12:38,935 Uh, and so. 281 00:12:39,015 --> 00:12:42,575 So that, that brings us to the idea of how do you efficiently 282 00:12:42,575 --> 00:12:44,825 use your HSA during retirement? 283 00:12:45,155 --> 00:12:48,245 One thing you really have to be mindful of is you don't want to 284 00:12:48,255 --> 00:12:52,204 die with unreimbursed medical expenses having not been taken out. 285 00:12:52,455 --> 00:12:55,405 But you want to do that later in life to keep the account building. 286 00:12:55,405 --> 00:12:55,754 That's right. 287 00:12:55,755 --> 00:12:57,855 It's like a game of tax chicken, right? 288 00:12:57,915 --> 00:13:00,475 It's like how long can you wait and let the growth, you know, the 289 00:13:00,475 --> 00:13:03,845 earnings continue to grow so that you have more tax free wealth. 290 00:13:04,370 --> 00:13:08,090 But don't wait too long because if you do, you might, you know, so 291 00:13:08,090 --> 00:13:09,920 like anything has to be monitored. 292 00:13:09,970 --> 00:13:10,590 That's right. 293 00:13:10,910 --> 00:13:11,120 Yeah. 294 00:13:11,120 --> 00:13:14,400 Certainly as someone approaches the end of their life, especially 295 00:13:14,400 --> 00:13:15,820 at, if they're single, right? 296 00:13:15,820 --> 00:13:19,249 Because if they're married, that HSA immediately becomes the spouses and 297 00:13:19,249 --> 00:13:22,729 it would seem that you could still reimburse yourself for your deceased 298 00:13:22,740 --> 00:13:25,110 spouses, unreimbursed medical expenses. 299 00:13:25,370 --> 00:13:28,100 But if it's again, if it goes to a non spouse, like once, if you're 300 00:13:28,100 --> 00:13:31,570 a single person or if the first spouse has already passed away. 301 00:13:31,935 --> 00:13:35,625 Then you want to be really mindful about not dying with potentially tax 302 00:13:35,635 --> 00:13:38,215 free distribution dollars in your HSA. 303 00:13:38,675 --> 00:13:41,355 that would be taxable to your heirs if they passed on that way. 304 00:13:41,365 --> 00:13:45,495 Now these unreimbursed, I've seen this come up in some tax articles 305 00:13:45,495 --> 00:13:48,735 and things, these expenses, they could be back for years. 306 00:13:48,895 --> 00:13:51,195 Unlimited from the time you established your HSA. 307 00:13:51,195 --> 00:13:52,275 That's the problem. 308 00:13:52,435 --> 00:13:52,745 Yes. 309 00:13:52,755 --> 00:13:53,735 Documentation. 310 00:13:54,550 --> 00:13:55,070 That's fair. 311 00:13:55,120 --> 00:13:55,610 That's fair. 312 00:13:55,610 --> 00:13:58,800 It's why I actually I encourage people they should create a digital folder. 313 00:13:58,910 --> 00:13:59,680 That's a good idea. 314 00:13:59,680 --> 00:14:01,970 That's a, that's a digital meaning like on a computer. 315 00:14:02,000 --> 00:14:02,410 Yeah, yeah, yeah. 316 00:14:02,410 --> 00:14:03,380 You know, that's the thing where you type with it. 317 00:14:03,380 --> 00:14:04,930 Yeah, I'm just making sure you know. 318 00:14:04,940 --> 00:14:05,170 Yeah. 319 00:14:05,260 --> 00:14:08,750 So, uh, you know, the idea, create a digital folder and 320 00:14:08,760 --> 00:14:10,889 just compile a running total. 321 00:14:10,890 --> 00:14:15,595 What I would actually encourage people to do is have You know, just PDF after 322 00:14:15,595 --> 00:14:20,425 PDF or a copy of these receipts in there, scan it all in there and then keep a 323 00:14:20,425 --> 00:14:23,774 spreadsheet, you know, like an Excel spreadsheet where each year you total up 324 00:14:23,774 --> 00:14:27,124 your unreimbursed medical expenses and you have a running total there for yourself. 325 00:14:27,125 --> 00:14:30,154 Even if people don't do that, a simple thing, every time you 326 00:14:30,154 --> 00:14:33,825 pay a bill, because these are unreimbursed, you paid them yourself, 327 00:14:34,035 --> 00:14:36,115 but you didn't reimburse yourself. 328 00:14:36,455 --> 00:14:39,775 So now you didn't get any insurance to cover it after the fact either. 329 00:14:39,985 --> 00:14:40,085 Yeah. 330 00:14:40,105 --> 00:14:40,135 Okay. 331 00:14:41,395 --> 00:14:43,495 I know you know what unreimbursed means, Ed. 332 00:14:43,495 --> 00:14:44,905 I'm talking to the listener. 333 00:14:44,925 --> 00:14:49,194 All right, but I'm saying an easier way than people, you know, in the, on their 334 00:14:49,194 --> 00:14:51,255 deathbed starting an Excel spreadsheet. 335 00:14:51,285 --> 00:14:51,725 Uh huh. 336 00:14:51,725 --> 00:14:52,054 All right. 337 00:14:52,725 --> 00:14:54,284 Yeah, that might not be reasonable. 338 00:14:54,285 --> 00:14:54,895 Yeah, fair. 339 00:14:54,934 --> 00:14:55,305 All right. 340 00:14:55,305 --> 00:14:59,655 But it's gotta be a running, you know, like with any expense, a medical 341 00:14:59,655 --> 00:15:02,955 expense on a return or charitable, you have to have contemporaneous 342 00:15:03,015 --> 00:15:08,155 expenses at the times, documentation of the expenses at the times you 343 00:15:08,185 --> 00:15:09,835 just scan the bill as you pay it. 344 00:15:09,835 --> 00:15:09,895 Okay. 345 00:15:10,010 --> 00:15:13,240 or have somebody do it, and like you say, you put that in some file 346 00:15:13,240 --> 00:15:17,190 on your computer, and at the end, because this could be a big item, 347 00:15:17,190 --> 00:15:21,890 like you used 100, 000, that could be something that gets examined by IRS. 348 00:15:21,900 --> 00:15:22,419 Sure. 349 00:15:22,419 --> 00:15:22,990 A big hit. 350 00:15:23,000 --> 00:15:27,390 So you'd have to, it'd be, you can't say, well, that was 20 years ago, 351 00:15:27,779 --> 00:15:29,090 you know, that's not going to cut it. 352 00:15:29,110 --> 00:15:32,100 You know, and, and today this is a bigger issue than it ever has been 353 00:15:32,100 --> 00:15:35,410 in the past, because Ed, you know, today, uh, More than half of all 354 00:15:35,410 --> 00:15:38,660 workers who receive their employment, uh, or their health insurance through 355 00:15:38,660 --> 00:15:41,630 their employer have HSA eligibility. 356 00:15:41,990 --> 00:15:46,445 Which means that more people than ever today Can contribute to an 357 00:15:46,455 --> 00:15:48,355 HSA and obviously, that's right. 358 00:15:48,355 --> 00:15:51,505 Well, he can, he just, we're looking at our producer again, making sure that he, 359 00:15:51,685 --> 00:15:53,744 he takes advantage of his HSA next year. 360 00:15:54,005 --> 00:15:58,724 Uh, but more people than ever can contribute to their HSA and to 361 00:15:58,724 --> 00:16:02,595 make sure that they're getting this benefit of this triple. 362 00:16:02,790 --> 00:16:07,020 Or quadruple tax benefit account and to use those benefits. 363 00:16:07,020 --> 00:16:10,829 Remember, if all you do is contribute dollars and then take them out as 364 00:16:10,829 --> 00:16:14,149 soon as you have a medical expense, which is what most people do, you've 365 00:16:14,150 --> 00:16:16,109 only gotten one of the tax breaks. 366 00:16:16,110 --> 00:16:17,300 You only got the deduction. 367 00:16:17,579 --> 00:16:20,910 You didn't get tax deferred growth because you didn't have any growth and 368 00:16:20,910 --> 00:16:24,260 you didn't get distributions of tax free earnings because you had no earnings. 369 00:16:24,450 --> 00:16:28,400 So you take this beautiful triple tax benefit account and you turn it 370 00:16:28,400 --> 00:16:30,289 into a single tax benefit account. 371 00:16:30,560 --> 00:16:33,410 And clearly Ed, we know three, is better than one! 372 00:16:33,494 --> 00:16:37,775 Right, but you made a point earlier, it's not as easy as it sounds. 373 00:16:37,775 --> 00:16:42,935 Especially if you're younger, you use the term, if you have the cash flow outside. 374 00:16:42,935 --> 00:16:45,364 If you don't have the money, you have to use that money. 375 00:16:45,785 --> 00:16:46,195 That's right. 376 00:16:46,235 --> 00:16:46,575 You're right. 377 00:16:46,575 --> 00:16:49,015 If you look, if you need the money, you need the money. 378 00:16:49,225 --> 00:16:53,405 But there are too many people put their money into the HSA. 379 00:16:53,765 --> 00:16:55,084 They leave it in cash. 380 00:16:55,685 --> 00:16:58,684 They think about it as the first place they go for medical expense. 381 00:16:58,885 --> 00:17:01,425 And for most individuals, it should be thought of as kind 382 00:17:01,425 --> 00:17:03,235 of a supplemental Roth IRA. 383 00:17:03,554 --> 00:17:06,744 Because as long as they have a cumulative record of those medical 384 00:17:06,744 --> 00:17:10,675 expenses, any amount of medical expenses that have been unreimbursed. 385 00:17:10,960 --> 00:17:15,550 from the time they establish their HSA onward can be redistributed, 386 00:17:15,550 --> 00:17:19,599 repaid, reimbursed from the HSA, tax and penalty free. 387 00:17:19,599 --> 00:17:24,219 And by the way, if there are no medical expenses at 65, any of the 388 00:17:24,219 --> 00:17:27,149 earnings inside, well, any of the HSA dollars, I should say, not just the 389 00:17:27,150 --> 00:17:30,790 earnings, but the contributions and the earnings, become available penalty 390 00:17:30,790 --> 00:17:32,600 free, kind of like a traditional IRA. 391 00:17:32,600 --> 00:17:37,094 So at worst case scenario, If you put money into an HSA, it 392 00:17:37,094 --> 00:17:39,655 functions like an IRA after 65. 393 00:17:39,865 --> 00:17:43,165 And in a best case, at least from a tax perspective, assuming you have 394 00:17:43,165 --> 00:17:46,254 medical expenses, which look, we hope you don't have, but the reality is 395 00:17:46,495 --> 00:17:48,415 almost everyone has medical expenses. 396 00:17:48,725 --> 00:17:52,655 Yeah, then you can reimburse yourself and your IRA, uh, your 397 00:17:52,665 --> 00:17:54,794 pseudo IRA becomes a pseudo Roth. 398 00:17:55,004 --> 00:17:57,215 It is a home run from a tax perspective. 399 00:17:57,225 --> 00:18:00,055 One other little rule we didn't, because you just mentioned 400 00:18:00,055 --> 00:18:01,985 65, can't keep contributing. 401 00:18:02,365 --> 00:18:02,785 That's right. 402 00:18:02,785 --> 00:18:03,895 You can only contribute. 403 00:18:04,035 --> 00:18:08,304 Well, Most people can't contribute after 65, and the reason is you can't 404 00:18:08,304 --> 00:18:10,534 be on Medicare, uh, and contribute. 405 00:18:10,665 --> 00:18:14,185 However, some individuals, if you continue to work for, let's say, a large employer 406 00:18:14,185 --> 00:18:18,675 with more than 20 employees, after 65, you can continue on with the employer's 407 00:18:18,675 --> 00:18:22,674 health coverage, and that might still, you know, and delay Social Security. 408 00:18:22,974 --> 00:18:24,634 Um, that is something you could be aware of. 409 00:18:24,645 --> 00:18:28,475 Also, uh, one other note there, if you're taking Social Security, Right. 410 00:18:28,504 --> 00:18:29,475 And 65. 411 00:18:29,485 --> 00:18:29,845 Yep. 412 00:18:29,855 --> 00:18:31,685 Then you have to enroll in Medicare. 413 00:18:31,695 --> 00:18:35,534 At least part a, you have no choice, in which case, once again, you need 414 00:18:35,534 --> 00:18:37,695 to stop those HSA contributions. 415 00:18:37,695 --> 00:18:39,965 There's lots of nuances around this. 416 00:18:40,175 --> 00:18:43,264 Uh, there's a six month retroactive rule that catches a lot of 417 00:18:43,274 --> 00:18:47,004 people off guard if they retire after 65 from a large employer. 418 00:18:47,294 --> 00:18:48,715 All of that is important. 419 00:18:48,745 --> 00:18:51,304 And That's why you should have a, you know, professional advice 420 00:18:51,304 --> 00:18:52,554 when you're in these situations. 421 00:18:52,834 --> 00:18:56,804 But, you know, today for today, our primary focus was, you know, when 422 00:18:56,855 --> 00:18:59,574 should you use your HSA in retirement? 423 00:18:59,794 --> 00:19:01,414 And the answer is, at least today. 424 00:19:01,879 --> 00:19:04,879 You know, if we think about this from a theory perspective, as close to your 425 00:19:04,879 --> 00:19:06,830 death as possible, But not too much. 426 00:19:06,830 --> 00:19:07,340 But before, yeah. 427 00:19:08,040 --> 00:19:09,230 But before you die. 428 00:19:09,480 --> 00:19:13,100 But, uh, the point is, the amazing benefits of something that's not used, 429 00:19:13,129 --> 00:19:18,959 what'd you say, that's used, that's not used by more than 95 people, at a minimum, 430 00:19:18,959 --> 00:19:22,690 using it incorrectly, or at least, let me say not, at least they're not 431 00:19:22,690 --> 00:19:24,720 using the HSA as efficiently as we can. 432 00:19:24,909 --> 00:19:26,040 Because they keep it in cash. 433 00:19:26,050 --> 00:19:26,450 That's right. 434 00:19:26,450 --> 00:19:29,560 Keep it in cash and use it as a slush fund as opposed to having that 435 00:19:29,560 --> 00:19:34,199 long term tax free growth and then reimbursing oneself down the road. 436 00:19:34,210 --> 00:19:35,300 Something to think about. 437 00:19:35,420 --> 00:19:37,100 Absolutely something to think about. 438 00:19:37,340 --> 00:19:40,520 And lots to think about for us, including what we're going to talk about next 439 00:19:40,520 --> 00:19:42,089 time, because today, Ed, we're done. 440 00:19:42,290 --> 00:19:43,040 Okay. 441 00:19:43,499 --> 00:19:45,420 See you next time on The Great Retirement Debate. 442 00:19:47,725 --> 00:19:50,885 Jeffrey Levine is Chief Planning Officer for Buckingham Wealth Partners. 443 00:19:51,075 --> 00:19:54,254 This podcast is for informational and educational purposes only and should 444 00:19:54,254 --> 00:19:57,395 not be construed as specific investment, accounting, legal, or tax advice. 445 00:19:57,615 --> 00:20:00,475 Certain information mentioned may be based on third party information 446 00:20:00,475 --> 00:20:03,265 which may become outdated or otherwise superseded without notice. 447 00:20:03,395 --> 00:20:06,604 Third party information is deemed to be reliable but its accuracy and 448 00:20:06,604 --> 00:20:08,004 completeness cannot be guaranteed. 449 00:20:08,195 --> 00:20:11,155 The topic discussed in corresponding arguments are those of the speakers 450 00:20:11,355 --> 00:20:13,915 and may not accurately reflect those of Buckingham Wealth Partners.