HSA Is The Best Investment For Financial Independence Retire Early – The FIRE Movement


– Woohoohoo, I’m excited for this topic. It’s time for another
tool to help you reach financial independence and
financial freedom faster. I already showed you the
strategy on how to get free cars for a financial independence, so now we’re adding to that list of tools that you can use. Hundreds of thousands of dollars is what you could be leaving on
the table if you aren’t contributing to an HSA every year. Even if you are, you
could still be leaving more than $300,000 on the table if you aren’t using it properly. Now I don’t want this to happen to you, so let’s dive into this topic to make sure you’ve got yourself set
up to really maximize a Health Savings Account. Listen up, even if you aren’t pursuing
financial independence, you still need to consider
investing in an HSA like it’s a retirement account for you. Because the benefits
are absolutely insane, which I’ll cover in this video. So, do not miss it. Even if you are not
contributing to one right now, then you’ll better understand
it once we’re finished. In this video, I’m gonna give you a
crash course on an HSA, also known as a Health Savings Account. If you don’t understand
the details of an HSA, then it can be little bit intimidating. So, I wanna help you
break down those barriers and those walls so you
can see what’s so good about an HSA. We’re gonna cover things like the What, When, Where and How. I’ll show you what you need to be doing so that you can turn a yearly $3500 contribution into over $300,000 if you’re single and over $600,000 if you have a family. I’ll also log into my personal HSA to show you the system and
process that I have set up to insure a 100% success rate. If you have any questions
or need a little bit more clarification throughout the video, then please let me know
down in the comments. I’ll answer every single
question or do my best to help you find the answer
that you’re looking for. Like I said, I know that an HSA can seem
really intimidating at first, but the only way that
we reduce intimidation is by educating ourselves
just a little bit more, which I’m gonna help you out with that exact thing in this video. Hey, I’m Jarrad with an A, and on this channel we like to talk about all things personal finance and investing. An HSA is basically a
savings or investment account that you can contribute pre-tax money to every single year. Now, single people can
contribute up to $3500 per year and families can contribute
up to $7000 per year. Once money is put into this account, the only way to withdraw
it is by spending money on medical expenses. On the surface this sounds dumb and not worth your time at all. At least, that’s what I used to think. Let me get this straight, you’re money is basically
locked up with the annoying restriction of only being
able to access it through going to the doctor,
spending money on medication, getting injured or other medical
related expenses like that? Yes, that’s correct. But, what if you looked
at and used your HSA like another form of investment account. Think 401k, IRA, 403b and so on. The best part is that this would be a tax-free investment account. I’ll give you the strategy
to make this happen in just a minute. Think of an HSA like a
way to hedge your bets when it comes to medical
costs when you get older. It’s a way for you to kind
of earmark less of your retirement money that’s
in a 401k, IRA or 403b towards medical expenses. If you haven’t done it yet, please Hulk smash that thumbs up button. The way you use your
Health Savings Account like an investment is
by actually investing the money that you contribute into it. It’s kind of confusing
because the name has savings account in it, but once you deposit the
money into the account you’ll have the option to
either invest that money or just let it sit there. The HSA that I have allows me to invest all but $1000 of the money in my account. To be honest with you, I’m not sure if all HSAs are like this, but that’s just how mine is set up so I gotta deal with it. I’m assuming they do
this just to make sure that you have a little
bit of non-invested cash just in case you needed it. In the grand scheme of things, $1000 isn’t very much
and I kind of appreciate the fact that they’re giving
me this little restriction. I’ll show you my investments
in just a few minutes. There’s actually a triple
tax savings with an HSA. Yes, you heard me right, you save on your taxes
three freakin’ times. The first way, the money you contribute
to an HSA is pre-tax money from your paycheck. So, you skip out on paying
the taxes right there. The second way, the gains from your investment
growth, dividend payouts, and interest accumulated
is not taxed at all. So, you skip on paying
taxes right there, as well. And the third way, when you withdraw the
money for medical expenses, you do not pay any taxes
on that distribution. So, you don’t pay any
taxes on what you put in and you don’t pay any
taxes on any of the gains within the account. It’s kinda like saying, “Sorry, not sorry government,
but I’m not paying taxes on these either”. The way that you’re
gonna turn this into an additional retirement
account is by not pulling money out from your HSA when
you have any medical expenses. This means that you’ll
pay for all medical costs out of pocket and save
the receipts so that you can cash those suckers in
many years down the road. The reason you’ll do this is because you’ll want the money in
your HSA to be invested for as long as possible
so that it can grow. If you put $3500 into it this year, and pulled out that $3500 in the same year to pay for medical expenses, then you’d only have $3500 to spend. But, and this is a big but, if you left the $3500 invested, pay for the medical
expenses out of pocket, save the receipts, assumed a 7% return, and withdrew that money in 20 years, then that $3500 would turn into over $13,500 of tax-free money. And that’s just after 20 years. Let’s get a little more wild and crazy. If you waited 30 years, then that $3500 would turn into over $26,500 of tax-free money. And this just from contributing
to an HSA for one year if you’re a single person. Keep in mind, this example
is for a single person. If you’re a family, then you can contribute
up to $7000 per year and you would have double that amount. I’ve got a bonus tip
for you, so listen up. Now, if you want to maximize
your return even more, then you’ll want to do this. We’re gonna game the system a little bit. Since you’re gonna leave
the money in your HSA so that it can grow, you’re going to need to
pay for medical expenses out of your pocket. But, you’re smart and responsible, so instead of paying for
those out of pocket expenses with cash or a boring debit card, you pay for them all with
a good rewards credit card that you pay off before
the end of every month. Mind blown. Think about this, not only are you making money by keeping your HSA money invested, but you’re also getting, we’ll say, 2% cash back on that purchase
if that’s the type of rewards card that you use. If you wanna know the best
cashback rewards credit card to get, I made a video on that, I will throw a link in the
description to that video where I also tell you which
cashback rewards credit card I personally use. To open and contribute to an HSA, you need to be at least 18 years old and covered under a qualified
high-deductible health plan. Sometimes referred to as an HDHP. Now, these high deductible
health plans are usually always offered so it
shouldn’t be an issue. There’s two ways to
start investing in an HSA that you need to know about. The first way is through
your current employer. As long as you’ve chosen a
high deductible health plan, then you’re good to go. You’re employer would
usually call this plan out as HSA eligible but if you’re not sure, then by all means check
with your HR Department. Sometimes employers will
even offer to contribute some money to your HSA as well. In the case of the
company that I work for, they contribute $500
per year towards my HSA. All I had to do was go
get a wellness checkup and they credited my HSA account. It was pretty awesome. I was like, yeah I’ll take
free money any day of the week, especially when I’m able
to invest that money and let it grow. Sometimes employers don’t offer an HSA, and if yours doesn’t, don’t worry because you’re
still able to open one. As long as you’re enrolled in
a high deductible health plan, then you can open up an
HSA account on your own. In this case, it would be self directed. Kind of like how if you
want to invest in an IRA, then you have to do it on your own. The two that I’m more familiar
with that I’d recommend are Lively and HealthEquity. I’ll throw links in the description to check both of them out. If you’re employer offers an HSA, then they’ll choose the company so all you’ll have to
do is create an account. The good thing about an HSA is that you have full control over it. Once you start investing
in one, it is yours. You can take it with you even if you leave your current job. If you switch employers, then you can roll it over just like you would with a 401k account
with a past employer. You can withdraw your
money for non-medical expenses but it comes
with little bit of price. If you use your funds to pay for things other than non-qualified medical expenses, then those funds will be
taxed as ordinary income and the IRS will impose a 20% penalty. So if you spend $500 on
non-qualified medical expenses like candy at Walgreens or
something fun like that, then you’ll pay a $100 penalty. This $500 will also be
shown as income earned for the year as well, which you’ll of course pay taxes on. This is not cool. Don’t do this because it defeats the whole purpose of an HSA. And also don’t try to
get one over on the IRS by trying to use the
money for non-qualified medical expenses. Sure, they may not catch
you if they don’t audit you but the IRS, they really
aren’t the kind of people that you wanna be messing with. These people will eat your lunch, take the rest of your lunch money, then come back for more. This is really important. You need to keep track
of your medical receipts over the years so you’re able to actually take money out later down the line. If you’re not going to need
to cash these receipts in for another 20 or 30 years, then the odds of those
receipts getting lost is extremely high. You’re gonna move, you’re hopefully gonna
go on a cleaning binge and probably accidentally
throw those receipts out, or life is just gonna happen and they’ll randomly disappear just
like your socks always do. Side question, does anyone
else have a sock monster living in their house
like I have since I was a small child? Organization is the key. If you’re not an organized person, then you need to get freakin’ organized. These receipts are like
Willy Wonka’s golden tickets. No ticket, no chocolate. They are as valuable as
money since you can’t take money out of your HSA without them. Here’s my personal system. To insure that I never lose a receipt, immediately after paying a medical bill or arriving home from the doctor’s office, I take a picture of that receipt, then I upload it to a file storage system somewhere out there on the cloud. Now, you can use something
like Google Drive, Dropbox or Evernote. I personally use Google Drive and I have a specific folder
set up for this type of thing. I have one folder for receipts
I haven’t cashed in yet, and another one for when I eventually do. That way, I’ll be able to
keep track of everything. I’m a weirdo who likes
to stay super organized and I’m an over-achiever, so you don’t have to go this far, but I also track my medical expenses in a Google spreadsheet
where I track a lot of my other life things as well. Now, you can’t just submit
receipts for everything, so let’s talk about the
medical expenses that are eligible for reimbursement. We’ve got acupuncture,
bandages, body scans, chiropractor, contact solution, glasses, doctor’s appointments, surgery, therapy, wigs, x-rays, guide dogs. If you get a guide dog, you can turn the receipt in to your HSA and get that stuff paid for tax-free. Those are just a few. The list is pretty long
and the IRS will update it every year. I would assume that the
vast majority of things on this list will not change. To give you a detailed look
at everything on the list, I’ll throw a link down in the description so you can go over it a
little bit more for yourself. Since you’ll be using your HSA as a retirement investment vehicle, we need to have the very
important fees talk. No matter which company
you use for your HSA, you should be aware of if
they charge you any fees. Most won’t, but some will charge you. As for the fees, when it comes to the
investments that you choose, I personally go with
a low cost index fund. Preferably, something from Vanguard, if they’re available. Now it’s time to get into
some behind the scenes, how the fudge is packed,
how the sausage is made, and show you my HSA. So, here is my HSA. My current employer uses
HealthEquity as the provider. I like them, they are perfectly fine. I have no issue with them
at this point in time. Now, leading up to this year, I wasn’t contributing to an HSA for a couple different reasons. One of them was, I was on some medication
that I wanted to get off before I started contributing to an HSA, and the other one was I
didn’t understand an HSA and how important it
was and how much it can help your retirement, help supplement your
retirement and grow even more wealth for your future self. So, that’s why my account
balance isn’t too high cause this is the first year. If you notice here, I have the breakdown
of my account balance. So I’ve got $1400 invested,
and available to spend or do something with, I’ve got $1300. Now, like I said in the
very beginning of the video, I have to leave $1000 available to spend. I can never invest $1000, that’s a minimum that I
have to keep in my account. But I still have $337 to invest. But I’m gonna get to that in a minute and what I’m doing with that
cause it’s very important. Now let me show you how I have
my investments broken down. Here are the two investments. I’ve got a bond and I’ve got a Vanguard growth index right here. And it’s a 95% in the growth index and 5% in a bond. These are the investment
options that I have available to me. Luckily, HealthEquity
has all low cost Vanguard index funds, which makes
my heart really happy, and they’re all passively managed, which makes the cost very low. That’s why it’s a low
cost type index fund. They also have retirement
funds in here as well. Going back to what I mentioned in the very beginning of the video, as you can see, I still have
$337 available to invest. Now, I just had that money
deposited into my HSA account, and I don’t have to do anything right now because I have turned on
automatic investments. So, this money will be invested
first thing Monday morning. If you have an HSA, I highly recommend turning on auto invest. Because you don’t wanna have
to log into your account and be clicking to
invest every time you get money deposited into your account. Because time in the
market is more important than timing the market. You wanna leave that out of
your hands, out of your brain, and not even worry about
having to click invest because it’s automatically
going to be doing it for you. And just to show you my
investment fee, if you will. They have a monthly
administration fee of .033%. I can’t get around this, it’s just the way that
it is with HealthEquity. So, I kinda have to deal with it. But luckily it’s pretty low, so it’s not that big of a problem. If it was higher than that, I’d probably go to my HR
Department and be like, “Hey, look at this, this
is really expensive. Can we switch companies or can you talk to the company to get that fee lowered?” Just to reiterate the
monetary benefits again. If you are single and max
out your HSA for 20 years, then at a 7% return,
you’ll have over $143,000. After 30 years, you’d have over $330,000. If you’re married and you
max out $7000 per year for 20 years, then at a 7% return, you’ll have over $286,000. And after 30 years, you’ll have over $660,000. Even though you might be healthy now, we’re all gonna age and see a
spike in our medical expenses as the years go on. That’s why it’s important to
take advantage of this HSA right now. It’s gonna save you a ton
of money in the future if you just make sure to invest
the money in your account. Let me know in the comments below what you think of an HSA or if
you have any more questions. Check out the links in the description to different playlists to
help you out with all of your personal finance and investing needs. I’ll see ya in the next
one friends. Adios. Quick disclaimer: This video
is for informational purposes only, I am not a financial professional. Please do your own research
before investing your money.

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