If you have an HSA account there is a little-known secret  HSA loophole that can allow you to take tax-free withdrawals in retirement.

In this video, we discuss who should utilize this strategy and how to avoid costly IRS penalties.

HSA Loophole

Show Notes:

• HSA Eligibility List
• HSA store

Full transcript:

SPEAKERS

Anthony Saffer & Alex Okugawa

Full Transcript:

Anthony Saffer 0:00
If you have a health savings account, today, we’re going to talk about a little-known secret to taking tax-free withdrawals in retirement. Today we’re going to show you how to take advantage of this tax name cool. Hey there, it’s Anthony and Alex. And if you’re new here, we’re Certified Financial Planners. We help folks with all things tax, retirement, and investments. Today, we’re gonna talk about a special tax loophole that has to do with health savings accounts. So Alex, let’s start with who can have an HSA?

Alex Okugawa 0:29
To be able to contribute to an HSA, you need to be enrolled in what’s called a high deductible health care plan. One important caveat, it’s important to note that once you’re on Medicare, you can no longer contribute to an HSA, I just want to make sure that’s clear, especially for folks as they get older.

Anthony Saffer 0:49
Yeah, and the higher deductible health plan. Sometimes people shy away from those. And even though it can be a benefit, and they turned towards paying, you know, quite a bit more for full benefit type health plans when this is a benefit.

Alex Okugawa 1:01
The HSA plans are unique because they have what’s called a triple tax benefit, there’s quite literally no other account out there like it, it’s incredibly powerful. So let’s pull it up on the screen real quick, as people can follow along. The first tax benefit is contributions are tax-deductible. So again, great for folks that are in those higher income tax brackets, they get a deduction for those contributions, the growth inside of your HSA whether or not you keep it in cash, and you earn a little bit of interest, or you end up investing some of the funds, the growth inside that account is tax-deferred. And then finally, when you take qualified medical distributions from your HSA, those withdrawals can come out tax-free. Now, again, a lot of people be like, Well, what’s a qualified medical distribution, some things are clear, some things are a little gray, and there’s a nice resource that I found helpful. It’s called the HSA store. So we’ll put that in the comments. In the show notes, people can use that you can check to see if your medical expenses are qualified under an HSA plan to be deductible.

Anthony Saffer 2:04
Yeah, and most people use it to HSA is like a medical checking account, you know, I put money in I have an expense, I take it back out. But with a little bit of organization planning ahead, you know, managing your cash flow, this can be a huge benefit later on down the road.

Alex Okugawa 2:17
If you have the cash flow, you should look at taking advantage of this plan, especially for folks that either might be maxing out their HSA each year and then also have excess cash flow left over to pay for those medical expenses, which can be a big win for them. Again, you don’t have to reimburse yourself for those medical expenses in the same year, or the same plan year that you incur those medical expenses. If you incur that medical expense, you can just write it down. And then you can reimburse yourself from the HSA at a later date. Now, record-keeping is really important when you do this, right when you have a medical expense, and you don’t reimburse yourself, but you write it down. That record-keeping is really important. We’ll put this on the screen. This is directly from the IRS website. And you’ll want to do three things. Note that you must keep sufficient records that show distributions were exclusively to pay or reimburse qualified medical expenses to that the medical expenses hadn’t been previously paid or reimbursed, and then that the medical expenses hadn’t been taken as an itemized deduction in any year. Record keeping is really important here, you want to make sure you don’t run into any problems with an audit or the IRS down the road.

Anthony Saffer 3:32
Yeah, and one easy way to start could just be with the small things, right is you you know, you’re at the store, you’re picking up, you know, children’s Tylenol, and if that qualifies, you know, you’re not going to necessarily make a separate purchase with your HSA card just for that particular thing. You can just note it on a spreadsheet, keep the receipt and then add those things up later on

Alex Okugawa 3:51
Great tax benefit for folks, especially if they invest the money they can let it grow compound, tax-deferred in the future. So awesome benefit.

Anthony Saffer 3:59
And let us know what you think. Have you used an HSA to create a pool of tax-free income in retirement? Why or why not? Leave your thoughts in the comments down below. And if you liked today’s content, please like and subscribe for more. Thanks for watching.

Transcribed by https://otter.ai

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