Stephanie McCullough (00:06):

Welcome to Take Back Retirement, the show for women 50 and better, facing a financial future on their own. I’m Stephanie McCullough, and along with my fellow financial planner, Kevin Gaines, we’re going to tackle the myths and mysteries of “Retirement,” so you can make wise decisions toward a sustainable financial future. Through conversations and interviews, you’ll get the information and motivation you need, to move forward with confidence. And we’ll be sure to have some fun along the way. We’re so glad you’re here. Let’s dive in.

Stephanie McCullough (00:40):

Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia, this is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say hello, Kevin.

Kevin Gaines (00:50):

Hello, Kevin.

Stephanie McCullough (00:52):

So, Kevin, what are we talking about today on the podcast?

Kevin Gaines (00:55):

We’re talking about, actually, something that you may find on the internet listed as top-secret way to save more for retirement or some other corny tagline that you always see with promotional stuff on the internet, but it actually is a really good topic. Health Savings Accounts, HSAs. Don’t let the hype fool you, this actually is a powerful savings tool, but like everything else, you got to know the rules and you got to understand when it’s a good idea, when it’s a bad idea and when it could be an “eh” idea.

Stephanie McCullough (01:32):

So dear listeners, years ago, I heard a consultant who followed our industry talk about how a really good financial planner had three roles with our client, guru, meaning they knew the rules and the language of the stuff, guide, meaning together we walk this walk and come up with a plan, and gladiator, fearless defender of your future self. I like that, but I’m going to tell you, today in the podcast, Kevin is the guru who likes to geek out on the rules, and I’m going to try to be your gladiator to protect you from him going on and on and on and on and on, and boring you to death with all the little minutiae about HSAs, because to be fair, to be honest, this is a government program that Congress came up with, and the administrative branch came up with all the little rules. So, there are lots of rules to know. So, we’re going to try to do our best to give you the overview, the stuff you need to know without going on and on and on.

Kevin Gaines (02:27):

Yep. You know what, full disclosure, when we get these presentations from people we follow and conferences we go to talking about Health Savings Accounts, and this is true of most of these types of accounts or strategies or whatever, it’s a 60, 90-minute PowerPoint session. We can spend a lot of time talking about this and you’d probably be capping out after about 10 minutes. So, a lot of the stuff we’re going to be covering here are generalizations, and there are exceptions and loopholes and provisions.

Stephanie McCullough (03:07):

And we’re going to try not to go down those rabbit holes.

Kevin Gaines (03:09):

I’m going to do my best to ignore them, but I promise nothing because I’ve never seen a rabbit hole I didn’t want to go down.

Stephanie McCullough (03:18):

It comes from a place of love. He wants to make sure that you’re fully informed. I’ll just put that out there.

Kevin Gaines (03:24):

Back in 2008, back when the economy was collapsing and we were all convinced we were never going to see a sunny day again, they attempted to put together a rescue package to save the economy. The government was doing this. Hank Paulson, when he was secretary treasury, put together this quick one-page plan and he sent it to Congress, and it got rejected quicker than anything. And the reason that he was told, it was too short. It was too simple. One page, that’s not a proper government law. It needs to be several, several pages, and-

Stephanie McCullough (04:04):

Several volumes.

Kevin Gaines (04:05):

… reams and reams. Yes.

Stephanie McCullough (04:08):

Oh my gosh. That’s funny.

Kevin Gaines (04:09):

So, keep that in mind. That’s a Health Savings Account. It could be a lot simpler, but it’s a government program, so it’s not.

Stephanie McCullough (04:15):

Okay.

Kevin Gaines (04:16):

So, let’s go.

Stephanie McCullough (04:19):

Yes, let’s go. Let’s dive in.

Stephanie McCullough (04:25):

So, very often, I’ll talk to clients who might have an HSA, a Health Savings Account as a benefit through work. We’ll get into the fact that you can also buy it on your own. But most often, when I see it, it’s something available through work, but clients are confused because there’s two acronyms. The government loves acronyms. There are two acronyms that sound very similar. There’s an FSA. Today, we’re talking about the HSA. Kevin, what’s an FSA, just super quick?

Kevin Gaines (04:51):

So, FSA, Flex Spending Account, and this account allows you to put money away for that particular calendar year to use for medical expenses. If you don’t use it by the end of the year, the money goes bye-bye. Little anecdote, that’s the reason you see an increase in the sales of glasses at the end of the year, November and December, because everybody is trying to use their last FSA dollars before they lose them. So, what do they do? They buy eyeglasses. It’s a little quirk and funny.

Stephanie McCullough (05:25):

So, there’s tax benefits, right? When you put money into a Flexible Spending Account, you get a tax deduction for the money you put in. And then if you use it on these particular lists of things, there’s a list of qualifying expenses, medical related, glasses among them, that you can use it for, but you have to use it every year. So, it’s a use-it-or-lose-it type of plan. So, for some people, it’s great. Other people have gotten burned, right? They’ve maybe put money into it. They hadn’t used it all up. So, then they equate FSA with this other thing they might hear about, this HSA, but they’re quite different. So, Kevin get us started, the Health Savings Account, what are the main outlines of this?

Kevin Gaines (06:05):

So, the HSA can be a long-term savings account for medical expenses, sometime in your lifetime, 30-year or 40 years down the road, or one week down the road. You can put the money in and take it right back out for a qualifying medical expense. It’s not like an IRA that you’re locked in for a certain period of time before you can take it out, or a certain age or anything like that. Now, similar to the FSA, the money goes in pre-tax, whether your employer puts the money in and it goes in, kind of like the 401(k) goes in pre-tax so you don’t have to see it through payroll or anything like that. Or if you put the cash in yourself, you can take the deduction, again, like an IRA contribution, for example.

Kevin Gaines (06:57):

Then, it grows, and the growth, you don’t have to pay tax on the appreciation each year, like you would with a regular investment account or a savings account. And then when you take the money out, assuming you use it for qualifying medical expense, there’s no tax due. So, what this means is the HSA is the only account that can be completely tax-free. Pretty good deal.

Stephanie McCullough (07:28):

So, this is why financial planners get super excited and start jumping up and down when they hear that their clients have this available. It’s a triple tax benefit. So, you don’t pay tax when you put the money into the HSA. So, you get a tax deduction there. You don’t pay tax when it grows. And if you use it for qualifying expenses, you don’t pay tax when you take it out. Triple tax, it’s unique.

Kevin Gaines (07:56):

But wait, there’s more. I was at another presentation recently, and they pointed out, which I have to admit, I hadn’t realize this, if your employer makes the contribution and the money goes in pre-tax, again, like your 401(k) contributions, it’s also payroll tax-free. So, if you look at your W-2 that you get at the end of the year, and it shows your taxable income, and it says social security wages, and then I forget what box three is called, but that’s your taxable income tax wages. If you’re contributing to a 401(k), those two numbers are different. That’s because the money you put in your 401(k), you don’t have to pay income tax. It goes pre-tax, but you’re still paying your social security and Medicare tax on those dollars. You don’t with the HSA money. So, this particular presenter, he pointed out that you could argue that there’s actually quadruple tax-free which, hey, the more tax-free you can throw into the conversation, the more I’m interested.

Stephanie McCullough (09:01):

Okay. So, this sounds awesome. Why doesn’t everybody put all their money into this thing?

Kevin Gaines (09:08):

Hey, here’s a shock. There are some restrictions associated with the HSA.

Stephanie McCullough (09:12):

Oh, darn it.

Kevin Gaines (09:16):

You mean there’s no free lunch? Yeah, exactly.

Stephanie McCullough (09:18):

Mm-hmm.

Kevin Gaines (09:20):

So, the biggest restriction on HSAs, there are only certain types of health insurance plans you can own that will allow you to contribute to an HSA, high-deductible health plans, HDHP. When you sign up for health care, whether through your employer, or even if you go out onto the health networks and get your own, you will actually see a designation for certain high-deductible health plans. They say, “Yes, these are eligible to be called HDHPs, which then entitle you to contribute to an HSA.” As the name applies, there is a high deductible with these plans. So, what that means is instead of having to pay $500 before all of the extra, the insurance starts kicking in, you may have to pay $1,500, if you’re an individual, or I think this year it’s $3,400 or $3,500 if you’re a family plan, so you, your spouse and kids, or whatever are included before the insurance really kicks in and starts covering your costs.

Kevin Gaines (10:33):

But as long as you have that, guess what, you’re allowed to contribute to an HSA. Now, the other little detail is you can’t have any other insurance as well. So, for example, you have a high-deductible plan and it covers you and your family, and your spouse has health insurance through their employer and it covers the whole family. Don’t ask me why you might do it that way, but you do. You’re actually disqualified from contributing to an HSA because you were somehow covered by this non-HDHP health insurance plan. So, pay attention to that particular detail.

Stephanie McCullough (11:17):

Okay. So, let’s say I’ve got a high deductible health plan. I want to do an HSA. Why can’t I put a whole heck of a lot of money in there? I want to put $20,000 in this year. Can I do that?

Kevin Gaines (11:28):

You can, but the IRS is going to give you a whole lot of grief for trying it. No, you have your annual limits, just like for most tax-favored plans. Shockingly, the government was aware that, “Hey, this is a good deal. People are going to want to put a lot of money into this. We don’t want to give up too much tax revenue, so let’s cap it.” They actually have it at lower caps than an IRA. Which, one of the big confusions with HSAs, first tangent of the conversation, is a lot of people associate IRAs and HSAs together and get the rules confused, and there are differences between the two, some work in your favor, some not in your favor. Not in your favor, the contribution limits are lower for an HSA than it is for an IRA. So, this contribution limit, I commented earlier that you can’t have a second insurance covering you. Well, you can’t have an FSA covering you. So, if your employer offers HSAs and FSAs, it’s one or the other.

Stephanie McCullough (12:38):

Okay.

Kevin Gaines (12:39):

There’s a couple of little technical ways you can kind of work around it, but for the purpose of this conversation, it’s an either/or situation, and it’s not something you necessarily think of. You cannot be a dependent on somebody’s tax return. You have to file your own tax return or filing joint or something along those lines. You can’t be listed as a dependent and have an HSA. Now, that’s not to say, if you’re on your parents’ health insurance plan, say, you’re 25, 26 years old, you’re filing your own taxes, but you’re still covered under mom and dad’s health insurance, you can have the HSA then because you’re not a dependent. One of the biggest confusions is you don’t have to own the health insurance yourself. As long as you’re covered by that plan, you’re eligible for the HSA. That gets a lot of people confused. Yes, you don’t have to be the owner of that policy. So, those are a couple of the eligibility requirements.

Stephanie McCullough (13:41):

So, I was just looking that contribution limits for 2021, when we’re recording this, for an individual, the maximum that you could put into the HSA is $3,600 this year. If you’re covering the family, it’s $7,200, and then they have a catch-up for age 55 and over. Remember, the catch-up in your IRA and your 401(k) starts at age 50. The HSA for some reason, it’s age 55, because they’d like to keep it complicated. That’s an extra thousand dollars. So, if I’m an individual, instead of putting in $3,600, I could put $4,600. So, that’s a decent amount of money, but it’s not as much as your IRA. So, it’s interesting that you’ve got to choose between a Flex Spending Account and a Health Savings Account.

Stephanie McCullough (14:28):

Again, the confusion I’ve seen with people is they don’t realize that the big difference, to me, is that this Health Savings Account does not have to be emptied every year. Really, the huge benefit there is leaving the money in, letting it grow and accumulate because most plans let you invest it, not just sit it in a savings account, and then heck, use it in retirement. You’re going to have medical expenses in retirement if only your Medicare premiums and other insurance premiums, you’re going to have some type of expenses. So, if you’ve let it grow and accumulate and compound through investing and you can take it out tax-free, that’s a really nice thing to have.

Kevin Gaines (15:11):

That’s a good point, Stephanie. I want to revisit something that you said about the catch-up provision, that extra thousand dollars. Again, sticking with the theme HSAs are not IRAs, that contribution limit or that catch-up provision is a per-person catch-up. It’s not a per-health-plan catch-up. So, husband and wife are under a health plan. That annual contribution limit, the $7,200. So that’s for that tax return. So, the most an employee and spouse can contribute is $7,200. Whether it’s in one or two HSAs, it doesn’t matter. $7,200 is the limit, but that catch-up is per person. So, each spouse can put $1,000 into an HSA once they’re over the age of 55. In that case, it actually does have to be two HSAs because it’s four per person. So, you got to keep them separate. So, just to add yet a little bit more complication, because why not?

Stephanie McCullough (16:25):

So, what are the other key pieces people should know before they decide if they want to do one of these things?

Kevin Gaines (16:30):

So, we’ve talked about the rules to determine if you’re eligible. We’ve talked about how to get money into the account. Let’s talk about when to take money out of the account. At some point, you want to. So, when do you? Well, here’s the thing. If you have a medical expense that you accrued after you opened this HSA, you can take the money out to pay that expense. Again, whether you accrue that expense immediately or 30 years down the line, you can take the money out and cover that expense and there’s no taxes due, there’s no penalties on those dollars. The other thing about the timing of the expense is as long as the expenses accrued after the HSA is open, it doesn’t matter when you take that money out. You could have $1,000 dental bill tomorrow. So, when you have the HSA open, 30 years from now, you can take the money out to cover that expense.

Stephanie McCullough (17:36):

What? The dentist wouldn’t like it if I wait 30 years to pay for them.

Kevin Gaines (17:41):

Well, I didn’t say you could wait 30 years pay the dentist. You got to pay the dentist when you got to pay the dentist, but you can pay yourself back whenever you want. You know what, that actually reminds me of a quick point, little feature on 99% of the HSAs, maybe it’s 100%, but I never liked to say, it’s always something. Most HSA accounts have a debit card attached to them, or you can get a debit card, and that would allow you to pay the expenses directly from your HSA account. You don’t have to worry about moving the money out of your checking account and then moving the money from the HSA back into your checking account however you want to do that. So, you can actually keep these things fairly simple that way. It’s also going to be a little bit simpler to keep track of the expenses, and if the IRS asks, to show the expenses.

Stephanie McCullough (18:33):

Ah. They might ask?

Kevin Gaines (18:34):

The IRS can come along at any point and say, “Yeah. Can you prove that you really spent $10,000 on medical expenses?” So, save your receipts. That’s a big one, because like I said, IRS can come back and say, “Yeah. We don’t believe that number. Prove it.”

Stephanie McCullough (18:52):

So, if you get audited, this is one of the things that they can look at because you’re getting a tax deduction, right? Anytime you get in tax break, they can come back and ask you questions about it.

Kevin Gaines (19:01):

And I’ve heard stories that the IRS actually likes looking at the HSA withdrawals because they figure people don’t keep their receipts. They figure it’s going to be an easy way to catch you.

Stephanie McCullough (19:16):

So, anything the IRS likes is something we don’t, we, taxpayers. Our interests are not aligned. Is that fair?

Kevin Gaines (19:29):

Yeah. If the auditor is smiling, you may not want to.

Stephanie McCullough (19:34):

Okay. I can use this thing to pay my medical-related expenses, whether it’s this year, whether it’s in 20 years. Is there anything that would seem to be covered in there that’s not? Anything that might catch me up? I’m assuming I can use it for my chiropractor, for even things that my insurance might not cover, my expensive vitamins and supplements. Does that stuff all fall under the medical expenses?

Kevin Gaines (20:03):

Ah…

Stephanie McCullough (20:03):

Uh-oh.

Kevin Gaines (20:07):

Vitamins… Chiropractor, yes.

Stephanie McCullough (20:09):

Okay.

Kevin Gaines (20:10):

Psychotherapy, yes. You can use it for dog food if it’s a seeing eye dog.

Stephanie McCullough (20:16):

What?

Kevin Gaines (20:18):

Yes. Because it’s a seeing eye dog. It’s a service dog.

Stephanie McCullough (20:21):

Okay.

Kevin Gaines (20:21):

Now, if you say your dog is your… What do they call the animals so you can fly on the plane that… Comfort? Not comfort animal.

Stephanie McCullough (20:29):

Personal support or something?

Kevin Gaines (20:32):

Something like that. Yeah. Now, you’re entering at best, a gray area, if not an outright violation. But if it is a seeing eye dog or something very specific, then yes, the medical bills associated with… I hate to phrase it this way as a dog lover, as this medical device is a perfectly acceptable expense, but stuff you can buy without a prescription… Over-simplifying, so if you go into the HBA section of your Target or Walmart and you don’t need a prescription to buy it-

Stephanie McCullough (21:09):

The what section?

Kevin Gaines (21:10):

HBA, health and beauty aids.

Stephanie McCullough (21:13):

Oh, don’t know what that is.

Kevin Gaines (21:14):

One of my first jobs was at one of those stores, Jamesway, now out of business. Yes. One of the first things I learned was that particular section where you have the pharmacy and you have the blood pressure machine and you have the vitamins and the toothpaste and all that stuff, health and beauty aids, the HBA section, that’s what it was called.

Stephanie McCullough (21:35):

Okay.

Kevin Gaines (21:35):

One of those things you learn early on and just never forget for some reason. So that’s what that department’s called. Yeah. So, a lot of the stuff you’ll buy, you’ll get there without a prescription or that you could find in a grocery store in that particular aisle, you may want to double-check if you can do that. So yeah, toothpaste, no, vitamins, no, aspirin, no, but this is not an exhaustive list.

Stephanie McCullough (22:01):

What about my insurance premiums?

Kevin Gaines (22:03):

Generally, no, but there are, shockingly, some exceptions. Your Medicare premiums for part A, B and D, yes. Your Medigap and your Medicare supplement, no. Just your regular health insurance, no. There’s also a provision for long-term care, that some of that, you could actually use this for, not the entire premium, but there’s a certain part that’s… And we’re not going to go down to that description today. The other thing to watch out for is if you itemize and you take a medical deduction, anything involved in that medical deduction is not eligible for an HSA reimbursement, including the part that is excluded.

Stephanie McCullough (22:55):

Because you’re getting the double tax benefit?

Kevin Gaines (22:59):

Exactly. Yeah. So, say you have $20,000 in medical expenses. Now, medical expenses, they come with this exclusion on your tax return. This particular year, in 2021, it’s 7.5%. I think normally it’s 10%, but because of COVID, I think they’ve moved it down to seven and a half. I’m not a tax expert. Don’t quote me on this. But that excluded amount is also considered part of your itemized deductions, even though you’re not actually getting a tax benefit for it. So that seven and a half or 10% that you’re not allowed to get the deduction for, you’re not allowed to get an HSA reimbursement for either.

Stephanie McCullough (23:39):

Interesting.

Kevin Gaines (23:41):

Something else to be aware of.

Stephanie McCullough (23:44):

Short version, there could be some real benefits-

Kevin Gaines (23:47):

That’s the short version?

Stephanie McCullough (23:47):

… to this, but you got to follow the rules and know what you’re doing. So, Kevin, sometimes people are hesitant to use these types of tools because they worry, “Well, what if I might pass away and there’s money still in there? What happens if I die and I’ve got a balance in my HSA?”

Kevin Gaines (24:06):

Again, this is one of these retirement accounts, in a manner of speaking, which meaning, that it has a beneficiary form. So, you want to pay attention to the beneficiary form. If anybody’s going inherit it, you want your spouse to inherit it because they’re allowed to take it over it and use it as an HSA if they want to. Anybody else who gets this, it’s going to be a problem or a headache, at least. Maybe not a problem, but at least a headache because there’s no such thing as an inherited HSA account, which that means is from the IRS’s perspective, the day you die, if it goes to your child, for example, it’s treated as if that money was distributed at that moment, the entire account. It’s going to be fully taxable to your child, because again, no inherited HSA. So, they can’t use it for their medical expenses or any doctors. No offset there.

Kevin Gaines (25:08):

There is, which I’ll get to in a moment, but yes, they can’t use it for anything. So, not only is there this income bill you’re going to get hit with, if the person, for argument’s sake, it’s your child, if they’re under the age of 65, there’s a 20% penalty for taking the money out of the HSA. So, on $100,000 HSA, you’re talking basically what? $120,000 of tax to consider. 100,000 would be exposed to income tax plus $20,000 penalty. In other words, don’t let your kids inherit this stuff. Like I said, there is one exception, which is you’re allowed… You die, your HSA passes to whoever. Whoever has 12 months to pay any outstanding medical expenses you have.

Stephanie McCullough (26:06):

Ah, so a lot of people rack up expensive medical services at the end of life.

Kevin Gaines (26:14):

Correct. Now, I just want to remind everybody, medical expenses are healthcare expenses. The living have healthcare expenses, the dead do not. Funeral expenses are not medical expenses. So, you can’t use this money to pay for putting yourself in the ground, so to speak. But yes, but every bill you accumulate until that moment you pass, then your beneficiaries can use these dollars to cover those expenses, but they have to do it within 12 months. So, if there’s a forgotten bill two and a half years later, nobody can say, “Oh wait, we have these HSA…,” No, you can’t do it. You got 12 months to do it.

Stephanie McCullough (26:58):

So, I die with $100,000. My estate pays my outstanding medical bills. And then the remainder is income taxable and 20% penalty-

Kevin Gaines (27:10):

Yes.

Stephanie McCullough (27:11):

… if I don’t have a spouse or I haven’t left it to my spouse?

Kevin Gaines (27:14):

Well, under the age of 65 for… Technically, the rule is if you are under 65 and not using it for medical expenses. So, your spouse could inherit this and your spouse takes the money out to go on vacation. He or she is under the age of 65. Same penalties apply, it’s income taxable and it’s a 20% penalty because you’re under the age of 65. Conversely, if you’re over 65, it’s just income taxable and there’s no penalty. Confusion. Don’t you love simplicity, IRS style?

Stephanie McCullough (27:53):

Crazy. Thank you, Washington. Okay. So, let’s say I get to this new job and they were offering me something called an HSA. Given all these complicated rules, how do I decide whether I want to take advantage of this opportunity or not? What are the kind of key considerations in your mind?

Kevin Gaines (28:15):

To over-simplify, the healthier you are and the more financial resources you have, the easier this decision is because the logic being, if you’re healthier, you’re not necessarily going to be consuming a whole lot of health care. Maybe you go in for your annual physical, and most HDHP are going to cover your annual physical without having to require the deductible be paid first. They’re allowed to include certain services without violating the deduction rules. Yeah. So, if you’re not consuming healthcare, this is a great savings vehicle because you’re not going to have to worry about figuring out the deductibles and everything. If you got a lot of money in the bank, again, you can put this money aside, save it, and then just use your savings account to pay any medical expenses that might come up. Again, that’s after-tax money. So, it’s already been taxed. So, you can just throw it in there and take the deduction if you accumulate enough expense.

Kevin Gaines (29:27):

The other thing to keep in mind is if you get one of these health plans, these HDHP health plans, the premiums are going to be lower than a regular health plan. Because think about it from the health insurance companies’ perspective, there’s not as much cost for them because you have this big deductible. It’s not going to cost them as much to cover your expenses so they’re going to charge you less so you can… When you’re thinking through, if you want to go down this route, keep in mind, there is going to be that bi-weekly or how often you get paid, there’s going to be some savings there because you’re choosing a cheaper health plan.

Stephanie McCullough (30:07):

So yeah, that’s a big kind of… When you’re deciding, do I want to do a high deductible health plan at all, take a look, what is the deductible for the year. And if it’s just for me or if it’s my family, how much might I need to pay out of pocket and do I have that money somewhere, right? So, if between, say, you’ve got a family of four or five, that could be a significant number if heaven forbid, everyone breaks their leg that year, and you’ve got to use all the deductible, right? But that’s what you want to think through, as with all financial plans, right? What could go wrong?

Stephanie McCullough (30:41):

Okay. What could go wrong is everyone’s got to use their full deductible and you’ve got a big cash requirement in that year. Do you have the money in your emergency fund to cover that? Yes, you could use the money in your HSA. Absolutely. That’s what it’s for. And to make the most efficient use of an HSA, you would like to keep it in the HSA until you’re old and gray for years to come, because you want that tax-free growth. But of course, you can use the money in there, but it’s conceivable. If you start in January, everyone breaks their leg in February, you might not have much money in your HSA yet to cover that deductible, right? So, any time you’re signing up for a high-deductible health plan, you want to make sure you’ve got the money there to cover that deductible without putting it on credit cards, going into debt. That’s probably not an ideal outcome.

Kevin Gaines (31:35):

One more thing I’ll throw out there is with IRAs, you have income requirements. You have to have earned income. To be eligible to make an HSA contribution, you don’t have to have earned income. You could technically be living off of your investments, which is not considered earned income for the purposes of IRAs. But HSAs? Yeah, put the money in there. Nobody cares.

Stephanie McCullough (32:01):

Interesting. So, like anything, with these programs, make sure you understand the rules, the pros and cons, how it could benefit you, how it could bite you in the butt.

Kevin Gaines (32:10):

So, one point I want to make is… And there’s another one I’m going to make it a moment as well.

Stephanie McCullough (32:15):

I’m trying, guys. I’m trying to keep him from going on too long.

Kevin Gaines (32:22):

But yeah, again, going with the Ginsu reference, but wait, there’s more. Unlike IRAs, where you have to have earned income, you actually have to have a salary, whether it’s W-2 or 1099 incomes. With an HSA, you don’t to have earned income. You can be kicking back on the beach, living off your investments, 40, 50 years old, kind of like… Who have we talked to recently? KT.

Stephanie McCullough (32:51):

Episode 24.

Kevin Gaines (32:52):

Thank you. And you can still contribute to the HSA. You don’t have earned income, but you’re contributing to HSA. IRS is good with that, and that’s something to remember that, hey, as long as you’re eligible, you don’t have to have the income. Now, here’s one downside. You’ve heard that age 65 kick in once or twice in our conversations. There’s a reason. At age 65, you become eligible for Medicare. The moment you start taking Medicare, you can no longer contribute to an HSA. Medicare is not a high-deductible health plan and you’re covered. So, you are now disqualified from contributing. Now, you may say, “Hey, I’m not doing parts B and D and whatever. I’m only filing for social security. I’m not dealing with Medicare right now. I’m still covered by my employer health plan.” Here’s the problem. The moment you filed for social security, you got covered Medicare part A. So now, whether you use it or not, you have Medicare coverage. You cannot do the HSA.

Kevin Gaines (34:05):

So, the moment you file for social security, you cannot do the HSA. So, keep that in mind. Another reason to maybe defer social security until a later age, you can get a few more years of HSA contributions into your account. But the HSA, once the money’s in there, it’s legal to use whenever. So yes, you can be getting full Medicare coverage and everything. You’re still allowed to take money out to cover, as we said, like the premium expenses for parts B, your copays, any deductibles you have to worry about or stuff that’s not covered. You can use it until it’s gone. You just can’t put any more in there.

Stephanie McCullough (34:48):

For more on social security, listen to episode 15.

Kevin Gaines (34:52):

Ah, good point. So, did I keep it short enough? What do you think?

Stephanie McCullough (34:57):

I don’t know. I think we might’ve lost all our audience. Is anyone still listening?

Kevin Gaines (35:02):

Hello? Hello? Is this thing on? Testing. Testing.

Stephanie McCullough (35:06):

Bueller.

Kevin Gaines (35:06):

Bueller.

Stephanie McCullough (35:08):

All right. Thanks everyone. Hopefully, this was helpful to you. This is kind of our nuts-and-bolts series, like the details of… the nitty-gritty about these financial vehicles that we have that we may use. They might fit into our plan or they might not. So, we want to make sure that you’ve got the knowledge and the information to make smart decisions. Thanks so much for being with us. We’ll talk to you next time. It’s goodbye from me.

Kevin Gaines (35:33):

And it’s goodbye from her.

Stephanie McCullough (35:37):

Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only, Raymond Loewy through New Math in New York. See you next time.

Disclaimer (35:51):

Investment advice offered through private advisor group, LLC, a registered investment advisor. Private advisor group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material, are for general information only and are not intended to provide specific advice, or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor, prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.