Steadfast Care Planning
Steadfast Care Planning is for people who want to learn how to best plan for their longevity including how to navigate extended care, long-term care insurance options, and other challenges that older adults face. Join Kelly Augspurger, Certified Senior Advisor (CSA)® and long-term care insurance specialist as she has thought-provoking conversations with industry professionals. Tune in as Kelly guides you on how to plan for care to live well.
Steadfast Care Planning
Maximizing HSA Planning with Ben Henry-Moreland
🎙️ In this insightful episode, Kelly Augspurger talks with financial planning expert Ben Henry-Moreland about the strategic benefits of Health Savings Accounts (HSAs).
✨ Discover how to make the most out of your HSA, whether you're looking to cover immediate healthcare costs, or plan for long-term savings.
💰 Join us as we unpack the essentials of HSAs, exploring their unique benefits and tax advantages among many other important aspects of HSAs.
🏛️ Ben shares his expertise on maximizing HSAs through three key strategies: using funds as you go, investing for long-term growth, and balancing short-term and long-term needs, as well as, sharing loads of additional critical information concerning HSAs.
📻 Stay tuned if you're already utilizing an HSA, or considering one, this episode is packed with valuable insights and practical advice to help you make the most of these powerful savings accounts. Don't miss it!
In this episode they covered:
🔹 Triple Tax Advantages
🔹 Investment Strategies
🔹 Spousal Coordination
🔹 Long-Term Care Premiums
🔹 HSA Contribution Limits
🔹 Record Keeping
🔹 HSAs vs. FSAs
🔹 IRS Requirements
🔹 Navigating Life Changes
🔹 Expert Guidance
📽️ To watch this episode: https://youtu.be/MaBlW7FEzxE
🔗 For more information about Ben Henry-Moreland and Kitces.com, please visit:
📲 https://www.kitces.com
📲 https://web.facebook.com/ben.henrymoreland
📲 https://www.linkedin.com/in/bhenrymoreland
📲 https://www.linkedin.com/company/kitces
#HealthSavingsAccount #FinancialPlanning #SteadfastCarePlanning #kellyaugspurger #benhenrymoreland
For additional information about Kelly, check her out on Linkedin or www.SteadfastAgents.com.
To explore your options for long-term care insurance, click here.
Steadfast Care Planning podcast is made possible by Steadfast Insurance LLC,
Certification in Long Term Care, and AMADA Senior Care Columbus.
Come back next time for more helpful guidance!
Kelly Augspurger [00:00:02]:
Hey, everyone. Welcome to Steadfast Care Planning, where we plan for care to live well. I'm Kelly Augspurger, long-term care insurance specialist and your guide. With me today is Ben Henry-Moreland, who is a certified financial planner, enrolled agent, and senior financial planning nerd at Kitces.com. Hey, Ben, welcome. Thanks for being here.
Ben Henry-Moreland [00:00:21]:
Thank you so much for having me.
Kelly Augspurger [00:00:22]:
Today we're going to be talking about how people can maximize Health Savings Accounts, also known as HSAs, and take advantage of those tax advantages for their healthcare expenses. So, Ben, I know you're an expert in this field, and so I'm so stoked that you're here to be able to shed some light on this. But before we get into details of HSA planning, I have a personal question for you which I think is going to be fascinating for the listeners and viewers. But I know before you began in finance in 2012, you were a professional opera singer.
Ben Henry-Moreland [00:00:55]:
That's right.
Kelly Augspurger [00:00:56]:
Okay, so why did you make that transition from music to finance? Why the pivot?
Ben Henry-Moreland [00:01:02]:
Oh, gosh. Well, I could probably talk for this entire podcast about that, so I'll give you the short version. Essentially, when I started having sort of a performing career and got out of school, where they teach you very well the performing side of things, the nuances of being a performing artist, they don't teach you much about how to actually make a career out of it, or how to do any of the money related things you need to do alongside of that. Things about paying your own taxes and finding your own health insurance, which you know well about, and just managing a cash flow, managing a budget on a very inconsistent income schedule. And so as I got out in the world and was starting to manage all that stuff for myself, I ran into a lot of other people who had a lot of difficulty figuring that stuff out for themselves. And I didn't really even know of financial planning as a career at that point, but I realized that there were a lot of people who needed help doing it.
Kelly Augspurger [00:01:57]:
Okay.
Ben Henry-Moreland [00:01:58]:
And so just eventually as I started to think about other career paths, as I was feeling the need for a career change out of performing arts, it was The Great Recession. It was difficult to make a career in that field at that point, but I began to think about that as a potential way to go and realized that there was an actual profession of people who helped people with their financial decisions. And so that was kind of how I ended up in the financial space after a few years being a musician.
Kelly Augspurger [00:02:23]:
Gotcha. A very much needed profession, too. So I'm so glad you're here and you have the expertise in this now. So let's get into the HSA planning. Ben, will you explain, give us a general overview of what HSAs are, and why they were created?
Ben Henry-Moreland [00:02:38]:
Yeah. So In a nutshell, HSAs are just a tax preferred type of savings accounts made specifically for people's out of pocket health care costs. They were created by Congress back in 2003 to help address some of the rising healthcare costs that they were dealing with and that we're still dealing with in this country. So it's a tax preference account similar to, you think of IRAs or 401k plans, that have different tax characteristics that give them advantages over just a traditional taxable savings account. And so Congress created these to try to incentivize people to save more to pay for their healthcare costs.
Kelly Augspurger [00:03:13]:
Okay, and is it working?
Ben Henry-Moreland [00:03:14]:
Well, I think you know as well as I do that healthcare is pretty expensive in this country. So it hasn't by itself certainly brought down the cost of healthcare, but it certainly gives people a more tax efficient way to pay for those out of pocket expenses they have.
Kelly Augspurger [00:03:31]:
For sure, so let's talk about some of those tax efficient ways. I know there are "triple tax benefits" that HSAs offer. So tell us what those are.
Ben Henry-Moreland [00:03:37]:
Yeah, so you hear this term, "triple tax benefits", a fair amount thrown around about HSAs. And what that means essentially is that there are 3 specific types of tax incentives that HSAs create. The first one is when you put money into an HSA, that contribution is tax deductible. You get to take that amount of income out of your income for tax purposes. That's number one. Number two is any growth in the account is also tax free. You can invest money in an HSA, so you put that money into an investment, it grows over time, and
Ben Henry-Moreland [00:04:07]:
you don't pay taxes on that growth. That's in contrast to a traditional taxable brokerage account where you'd pay taxes on any dividends or interest or any capital gains that you'd incur that you'd realize along the way. So that's number two is the tax deferred growth. And then number three is when you take money out of the HSA and you use it to pay for qualified medical expenses, that money is tax free when it's taken out. And so really you get this triple benefit of tax deduction when you put money in, tax free growth on the account, and then tax free withdrawals when you take money out of it. Essentially it means that any money that you put into it and any money that you use eventually to pay for healthcare costs, you never pay taxes on that money at all. You basically go around it, which is in contrast to things like IRAs.
Ben Henry-Moreland [00:04:52]:
Think of a traditional versus a Roth IRAs. Traditional, where you put money in and take a tax deduction, but then you have to pay taxes when you take money out of it. This is not like that. You just don't pay taxes at all as long as you use it for those qualified medical expenses.
Kelly Augspurger [00:05:05]:
Okay, so it's a win, win, win. But not everybody can contribute to an HSA, right? Who can contribute to an HSA?
Ben Henry-Moreland [00:05:12]:
That's right. So there are 3 specific requirements. You'll hear a lot of threes in this conversation because there are just a lot of triple rules here around HSAs. But there are 3 rules for eligibility for making an HSA contribution. The first one is the most important one. You need to be enrolled in a high deductible healthcare plan. That's a specific definition that the IRS has that can get pretty complicated. But basically you have to be enrolled in a plan that has a certain level of deductible.
Ben Henry-Moreland [00:05:37]:
You pay a certain amount out of pocket before the insurance actually kicks in. And then there's also an out-of-pocket maximum on the insurance. But those numbers are less important than just knowing it's an HSA eligible plan. Usually when you look at a menu of health insurance options, there will be a number of them on there that say this is the HSA eligible plan. So you don't need to worry too much about the specific numbers. You just need to know it's a specific type of healthcare plan. So that's the first requirement there. The second requirement is you can't be enrolled in another type of health insurance, or have another type of coverage that's not high deductible.
Ben Henry-Moreland [00:06:11]:
So you have to be enrolled in high deductible coverage. You have to not be enrolled in any kind of other coverage that can include things like Medicare. It can include other types of insurance that anyone might be covered by, can't be covered by that and also contribute to an HSA. And then finally, the third requirement, anyone who is listed as a dependent on someone else's tax return cannot contribute to their own HSA. So dependent children of an adult who has them on their tax return can't contribute to their own HSA, which is in contrast to an IRA where some people who are dependents can contribute, but HSAs can't contribute to that.
Kelly Augspurger [00:06:44]:
Okay, so the 3's rule for that, for who can contribute. And then what are a few of the contribution rules and the limits in 2025? The annual limits.
Ben Henry-Moreland [00:06:54]:
Sure, so in terms of the limits right now, how much someone can put into an HSA depends on what kind of coverage they have, what kind of health insurance plan they're on. If it's a plan that only covers them, if it only covers one person, it's called a self-only plan. And for those people, they can contribute up to $4,300 in 2025. $4,300. And for someone who's got family coverage, and that doesn't have to cover the entire family, it just has to cover more than one person within a family. It can be spouses, can be someone and children. As long as there's more than one person, they can contribute up to $8,550.
Ben Henry-Moreland [00:07:31]:
So it's a higher contribution limit. If you've got a plan that covers more people, there's also $1,000 catch up contribution. So, if someone is age 55 or older, they can contribute an extra thousand dollars to their HSA, as well. So you can contribute basically for a family, for a couple that's both over age 55, they can contribute over $10,000 to an HSA in 2025.
Kelly Augspurger [00:07:52]:
Okay, wonderful.
Ben Henry-Moreland [00:07:54]:
In terms of other contribution rules, the couple things to note, one of them is that that contribution limit is adjusted for inflation. It goes up a little bit every year. So last year in 2024 it was I think $4,150 for self only and $8,300 for a family plan. So it goes up a little bit every year. Also, if you're listening and it's before the tax filing deadline for 2024, make a HSA contribution for 2024 up until the actual tax filing deadline. So you actually have until April 15th of 2025 to make an HSA contribution for 2024, as long as you were actually eligible to contribute in 2024.
Kelly Augspurger [00:08:30]:
Great tip.
Ben Henry-Moreland [00:08:31]:
Another thing to consider, I think around contribution rules is when you have two spouses who each have their own coverage, there can be a little bit of coordination that you need to do. And the rules around that, basically if both of your spouses, say you've got a couple, a married couple, where both of them are on their own health insurance, like self-only health insurance coverage that just covers them, they can each contribute to HSAs as long as they're eligible plans, but they can each only contribute up to that self only limit. So that $4,300 for this year. It starts to change when either of those spouses has family coverage. If there are children on that plan, on one of their plans, or if both spouses are covered by the same plan. If either of the spouses have family high deductible coverage, the IRS actually treats that as if both spouses have family coverage. And what that means is that either of the spouses, or both of the spouses can contribute to their own HSA and they can contribute actually up to the full family limits. So either spouse can contribute for this year it's up to $8,550. $8,550.
Ben Henry-Moreland [00:09:33]:
Either spouse can contribute that much to their own HSA regardless of whether they're on just their own self-only coverage, or the family coverage, as long as one spouse has that. The caveat there is that the total combined contribution between the two of them, the total combined amount that they both contribute can only be up to that $8,550, only up to that family limit. So basically either spouse, you can do $8,550 in one HSA and $0 in the other, or $0 in one and a $8,550 in the other, or split down the middle, or how ever the spouse has decided they want to split up that contribution, as long as one of them has family coverage, they can both contribute up to that amount.
Kelly Augspurger [00:10:10]:
Got it. So $8,550, that's really the target there. We can't contribute more than that.
Ben Henry-Moreland [00:10:15]:
Exactly.
Kelly Augspurger [00:10:15]:
Okay. The Steadfast Care Planning podcast is sponsored by the Certification for Long-Term Care, CLTC, an in depth training program that gives financial advisors the education and tools they need to discuss extended care planning with their clients. Look for the CLTC designation when choosing an advisor. If you're looking to become a CLTC, enroll in their masterclass and enter Kelly and the coupon code field for $200 off. And then what about distribution, Ben, what are some HSA distribution rules that we need to consider?
Ben Henry-Moreland [00:10:46]:
Sure. So I mean the big high level one is that to get that tax preferred treatment, distributions need to be for qualified medical expenses, and that's any expenses that are incurred by the HSA's owner themselves, the spouse of the owner, or any beneficiaries of the owner. So basically if it's a couple, husband and wife, and they have kids and the wife has her own HSA, the husband's expenses and any of their kids expenses can be used to pay from that HSA. So what are qualified medical expenses? Essentially that's defined as anything that can be deducted as a medical expense on someone's tax returns. And that covers a pretty wide range of different types of expenses. That includes just normal doctor's office costs and co-pays and deductibles and out-of-pocket costs. It covers prescription drugs, it also covers non-prescription drugs. Anything over the counter can also be reimbursed, or paid from an HSA.
Ben Henry-Moreland [00:11:38]:
It can pay for things like mental health therapy, things like that as well. It can also reimburse travel expenses if there are regular appointments that someone is driving to, or if someone flies to go get specialized medical treatment somewhere, they can actually deduct that as a medical expense, or also reimburse that travel cost from their HSA as well. And that's the thing that I don't think people see a lot.
Kelly Augspurger [00:12:01]:
Yeah, that's valuable.
Ben Henry-Moreland [00:12:04]:
Yeah, a couple notable things that it doesn't cover though, insurance premiums is kind of the big one. Obviously relevant in your case with a couple different exceptions. Normally just health insurance premiums cannot be paid for from an HSA. The exception there is that once someone reaches Medicare age, once someone reaches age 65 and starts paying Medicare Part B premiums, those premiums actually can be reimbursed from the HSA or paid from the HSA. Qualified long-term care costs. Also relevant in your situation, long-term care expenses can be reimbursed from an HSA, can be paid from an HSA. Also, if someone leaves their job and they're either on COBRA Continuation Coverage from their previous employer, or they are just any sort of coverage while they're on or eligible for unemployment benefits, they can also reimburse those premiums from an HSA, as well.
Kelly Augspurger [00:12:54]:
Okay, and let me touch on those long-term care insurance premiums, Ben, because it depends on your age, too, what those deductible limits are. So there are long-term care insurance eligible premiums based on age and there are different brackets. And so really the minimum that you can use and deduct is $480 and that's if your age is 40, or under. And then it goes up. So basically almost like every 10 years there's like another bracket. And so it escalates higher and higher of what those eligible premiums are based on age. It goes all the way up to 71 and older, which in 2025 the deductible premium limit is $6,020. So, there's value and leverage there the older you get and being able to pay your long-term care insurance premiums from your HSA.
Kelly Augspurger [00:13:41]:
So definitely make note of that if you have a policy, or your parents or someone in your family has a policy, do they also have an HSA? And you know, talk to them about potentially using that to be able to pay some of their premiums. And of course talk to their financial advisor, their CPA. You want to circle them in and make sure you're dotting your I's and crossing your T's. But definitely worth considering.
Ben Henry-Moreland [00:14:01]:
Absolutely. And like you said, it's based on age. It can be complex if you've got policies that are maybe a hybrid life and long-term care, there may be a portion of that premium that can be deducted, or that can be used from the HSA. So it's really important to understand some of those rules, or at least understand that there can be some complications and definitely often is worthwhile to seek out some expert help to help figure out where those benefits can be maximized.
Kelly Augspurger [00:14:25]:
Absolutely. Well, Ben, tell us. I know that there are different strategies when using HSAs, and you have a really clever kind of 3 different buckets that you talk about, but what are the 3 different strategies when using HSAs that you often talk about?
Ben Henry-Moreland [00:14:37]:
Sure. So I'll preface this with, I think one of the key things that I maybe haven't mentioned about HSAs, but one of the key features of them is that you don't have any specific time limit to use any of the money in an HSA. There's a cousin of the HSA called the Flex Spending Account that a lot of people see with their employers that they put money into it and it's tax deferred and they can take money out of it to pay for medical expenses. But with an FSA, you have to use that money by the end of the year or else it just goes away, you just lose it. HSAs aren't like that. That money remains yours in the account for as long as you let it sit in there. There's no time limit on using it. And so HSAs can be invested and saved for the long-term and can really be used in a lot of different ways.
Ben Henry-Moreland [00:15:20]:
There's a lot of flexibility in how you can actually use an HSA account. And so the way I normally see these and how I categorize the different ways that people use them kind of breaks down again into a group of 3 different strategies that I see. The first is using it as essentially your healthcare bank accounts. You put money into it, you keep as much money in there as you think will actually cover your healthcare costs for the year. Maybe you look at, okay this is my deductible for the year, this is my out of pocket limit for the year. And I'm just going to make sure I have enough to cover for this year's medical expenses. I'm going to put money into there and I'm going to take it out when I have those doctor visits, or have to pay those costs. And so it's basically you put some money in, you take some money out, your balance stays at the end of the year about the same because you're generally taking out about as much as you're putting in.
Kelly Augspurger [00:16:07]:
Okay, so you're using it as you go.
Ben Henry-Moreland [00:16:09]:
Yeah, essentially just the "use it as you go" approach is how I describe that. So that's kind of on one end of the spectrum. And I think if you look on the total opposite end of the spectrum, you have a much more long-term strategy that you can do with an HSA. Since you don't have to use those funds at any specific time, instead of taking money out when you have medical expenses, you just put money into the HSA and leave it there. If you have medical expenses, you pay them with money that's from outside of the HSA. You don't touch the funds inside the HSA. Instead you invest them and let them grow over time.
Ben Henry-Moreland [00:16:42]:
Particularly if someone is saving up for maybe medical expenses in retirement, someone's got a very long time horizon that they might be looking at those funds. They can get a lot of growth on those funds. It can get a lot of tax deferred growth. And as I mentioned before with the triple tax benefit features, that growth ends up being tax deferred and ends up being tax free if it's used for qualified medical expenses. And so for someone who puts money in and never takes money out as they're incurring medical expenses over time and just lets it grow, lets it compound over time they can really have a pretty substantial bucket of what can be tax free savings, I should say, for their expenses in retirement, which like I mentioned, can include things like Medicare premiums and can include things like long-term care insurance premiums. And just generally as people get older, they incur more medical expenses. So that's a time when it can really be helpful to have a big tax free bucket of medical expense savings. And so you can really take this kind of maximalist approach of treating it really as a supplemental retirement account for savings.
Ben Henry-Moreland [00:17:48]:
You let it grow over time. That's what I call it. It's just the "let it grow strategy" of not touching it, making sure it's there for retirement. I should also mention, once someone turns age 65, you can take money out of that HSA at that point and it's still taxable. But unlike before you turn 65, when there's an additional penalty, that's when I say you can't take money out for non medical expenses is if you're under age 65, that money is taxed and there's also a 10% penalty tax on any money you actually take out. Once you turn age 65, if you take money out of it and it's not used for actual medical expenses, it's still taxed, but you don't have that penalty, it doesn't have that extra 10% penalty at that point. It's kind of just like an IRA where you're taking money out and paying taxes on it, like a traditional IRA.
Ben Henry-Moreland [00:18:36]:
So obviously to the extent that you have medical expenses, it makes sense to keep using it for that, so you get that tax free withdrawal. But even taking it out for just regular living expenses, it can be valuable from that end as well. So that's that kind of "let it grow" approach where you just really make it essentially a savings account. The caveat for that there is that if you have medical expenses before that point, you need to pay them from somewhere. You need to have a source of funds that you can use to actually pay those medical costs. Not everyone always has the means, the resources to be able to basically maximize their contributions to their HSA and also pay all of their other medical expenses, as well, from funds outside the HSA. It's just not possible for everyone on their incomes. So there's a third approach that splits the difference between we're going to use this as a bank account and we're going to use this as a maximum long-term savings account.
Ben Henry-Moreland [00:19:31]:
And that's more of a bucket strategy where you put money into the HSA and you make sure you have enough to cover what might be your medical costs for the next years, maybe the next two years, or so. You have a bucket of cash that is your bank account portion of that account. But beyond that, you make sure that once there is enough in there to cover those shorter term expenses, any money beyond that actually will get invested and saved for the long-term. So you're also getting that tax deferred, tax free growth on those funds. And so you essentially have your short-term bucket in there of funds that you just keep in cash and make sure that it's available in case you need to pay them, use it for medical expenses. Once you reach that level of your account, then anything on top of that you make sure is invested. And there are different types of HSAs out there that let you keep some in cash and then you can invest the rest. And so that's the middle, "split the difference" approach, that you at least gets some of that tax free growth. You get some of that ability to build up substantial medical savings for retirement, but you also make sure that you have enough there that if you do actually incur medical expenses and you can't just pay those from your checking account outside of the HSA, that money is there in case you need it.
Kelly Augspurger [00:20:46]:
Okay, what do you see is most often used, Ben? Which approach for the HSA?
Ben Henry-Moreland [00:20:51]:
So for people, I would say it kind of depends to some extent, and this is sort of my bias in the advisory world, but I see different approaches with people who have a financial advisor versus who don't have a financial advisor.
Kelly Augspurger [00:21:03]:
Okay, that makes sense.
Ben Henry-Moreland [00:21:04]:
It's not just having a financial advisor, it's just having a certain level of knowledge and awareness of how HSAs work. But essentially, I would say for most people, I generally see using the bank account approach, when I see HSAs out in public, people use it as a bank account essentially. And if there is money that accumulates in it over time, it just stays in cash, it stays in the bank account side of things. I don't see people really taking a lot of steps to maximize and taking a lot of steps to invest more of that money for the long-term. So I see a lot more financial advisors trying to encourage their clients, trying to encourage people to use that more long-term strategy to try and take that more maximum approach, I think it can go a little bit too far, honestly. And this is just, I'm sort of opinionating here, but when I see advisors who do advocate for, "Oh, you just really need to invest all those funds and never take money out of it," without realizing that some people just can't do that. That just puts a bit more strain on people's cash flows sometimes than they can handle. And so it's really just about what someone in their particular situation can do to save money and put it aside and what their actual ongoing medical costs are, because that matters in terms of how much they can actually leave in the account.
Kelly Augspurger [00:22:22]:
Yeah, understood. I like the "fill the bucket" approach because it seems like it's the best of both. So if you can swing it, put a little extra in there, but use some for medical expenses, but also let some growth, you're going to get benefits from both.
Ben Henry-Moreland [00:22:33]:
Exactly.
Kelly Augspurger [00:22:34]:
I love having some options there though, Ben, that's really great. The Steadfast Care Planning podcast is sponsored by AMADA Senior Care. AMADA provides complimentary consultation with a senior care advisor to find the right care from in-home caregiving to community care, as well as long-term care insurance claim advocacy and unique support partnerships for financial advisors to address family transitions and generational retention. To learn more, visit www.SteadfastWithAmada.com What about some common mistakes that you see people make with HSAs?
Ben Henry-Moreland [00:23:11]:
So the biggest thing here that I see comes around job changes. Either you move from one job, you start a new job, or go to another job or around retirement, as well. And what happens here is one of the quirks of the eligibility rules for HSAs is that you can only contribute the full amount to an HSA if you're actually eligible for the entire year. If you meet those 3 criteria, being enrolled in a high deductible health plan, and not being enrolled in another plan, and not being dependent on someone's return, you have to meet all 3 of those things all year to make a full year contribution. Otherwise, it can be prorated for the number of months you actually are eligible. So, if you were someone who was eligible for an HSA for the first half of the year and then move to a new job that didn't have an HSA eligible plan, you could only make a half year contribution. Essentially, that's something that trips people up because they don't necessarily realize that they're only eligible to make a partial year contribution in that case. So if it was someone who's waiting until the end of the year to make their contribution and they thought, "Oh, I was eligible at the beginning of the year, so I can just make the full year amount."
Ben Henry-Moreland [00:24:14]:
IRS says, "No, you can't actually do that." You have to actually take money back out of the HSA if you make an over-contribution and are only eligible for part of the year. That's one of the big ones. Around job changes and similarly around Medicare, there's a weird rule called the six month rule for someone who is leaving their job, who's retiring and going on to Medicare. And that's only if they're after age 65 once they retire. So background on this is that for someone who is working beyond age 65 and still probably on their employer's health insurance, they're not necessarily enrolled in Medicare at that point, but once they do retire, they'll probably enroll in Medicare at that point. And the way that this six month rule works is that if someone is doing that, if they're working past age 65 and then they switch to Medicare at any point, their Medicare coverage is considered to start six months before they actually enroll in benefits. It's kind of a retroactive thing where the IRS looks back and says, "Okay, this six months date beforehand is when we consider your Medicare benefits to start."
Kelly Augspurger [00:25:17]:
Okay.
Ben Henry-Moreland [00:25:18]:
And like I said, if you are enrolled in Medicare, that is considered non high deductible coverage. And that means losing one's HSA eligibility at that point. And so essentially, for someone who's working past age 65, continuing to contribute to an HSA, but plans to retire at some point and switch to Medicare, they need to actually stop their HSA contribution six months before they plan to enroll in Medicare benefits or else they'll risk over-contributing to their HSA. It's a very weird rule.
Kelly Augspurger [00:25:46]:
I bet most people have no idea.
Ben Henry-Moreland [00:25:47]:
Yeah, exactly. And so it's something that presents all kinds of pitfalls for someone. And I think a lot of people do end up working past age 65 and a lot of times because they can stay on their employer's health insurance. And so really a big thing to watch out for there.
Kelly Augspurger [00:26:02]:
Okay. Okay, great.
Ben Henry-Moreland [00:26:03]:
I'll say one other spot I see people tripping up around HSAs is I mentioned FSAs earlier, Flex Spending Accounts. Employers often offer these. The weird thing about this one is that FSAs are also considered a non high deductible form of healthcare coverage. Even though they're not an insurance plan, the IRS treats them as something that would disqualify someone from contributing to an HSA. So that not only means that you can't contribute to an HSA and an FSA at the same time, because the IRS says that makes you ineligible for the HSA. But if someone's spouse is enrolled in an FSA from their employer, so you've got maybe one spouse who's on their employer's high deductible plan and contributes to their HSA, and then their spouse doesn't have a high deductible plan, but they contribute to an FSA that makes both spouses ineligible for HSA contributions.
Kelly Augspurger [00:26:50]:
Oh, boy. Okay.
Ben Henry-Moreland [00:26:51]:
It's a very weird rule, again. And a huge kind of landmine for people around HSA plans is they have no idea that the FSA covering one spouse makes the other spouse ineligible for their HSA contribution. It's important to be very careful when one spouse wants to contribute to an HSA to make sure that there's not a Flex Spending Account that's screwing things up for both of them. The one exception to that, there's something called a "Limited Purpose FSA" that some employers now offer that actually does allow for making HSA contributions. It just restricts the number of things that the expenses can be used for. It can be used for dental and eye expenses, but otherwise just a regular FSA can't be enrolled in and also be able to contribute to an HSA.
Kelly Augspurger [00:27:34]:
All right, so we've gone through a lot of details today, Ben, and obviously listeners, viewers, this is pretty complex. So navigating this on your own, it can be pretty darn difficult. So be sure that you're talking to somebody who's an expert in the field that knows what they're doing to make sure you're following the rules, you're not over-contributing or, you know, dotting your I's, crossing your T's. All really good info, Ben. And then what about record keeping? I would imagine people probably have to keep receipts, or record to some extent. What does that look like? What's recommended for HSAs?
Ben Henry-Moreland [00:28:07]:
So in general, if you're paying, or reimbursing yourself for expenses being paid from an HSA, just keeping the receipts of what those transactions were to show that they were actually qualified medical expenses, you know, 3 years after you incur the expense, essentially is the guideline, or basically 3 years after you file the tax return, I should say. Just making sure to keep those receipts afterwards. There's another side of things where, like I mentioned, you don't need to necessarily use all your HSA money in one year.
Kelly Augspurger [00:28:37]:
Right.
Ben Henry-Moreland [00:28:37]:
You also don't need to reimburse yourself for expenses in the same year you actually pay them. So if you have a surgery or something that you pay for this year, you can wait 5 years before paying yourself back from the HSA. And that means you can wait for a long time before actually reimbursing yourself for medical expenses from the HSA. So if you decide to do that, if you decide to reimburse yourself later for expenses you incurred this year, you need to actually keep more in terms of tax records for the year that you actually incurred the expense, because the IRS wants to know that you didn't already reimburse yourself from the HSA, that you didn't write it off on Schedule A as an itemized deduction. They want to make sure you weren't reimbursed in any way for that expense. So not only do you need to keep that receipt until you actually reimburse yourself for that expense, but you also need to kind of hang on to your tax forms, your tax records, to make sure that it's clear that you didn't already reimburse, or deduct that expense.
Kelly Augspurger [00:29:29]:
Okay. So making sure that you keep track of stuff's important when we have HSA. So you can't just have it, spend it, not keep track of anything. You do really need to have some discipline here and make sure you're tracking stuff.
Ben Henry-Moreland [00:29:41]:
Yeah. Really nice to have a scanner of some kind and a Dropbox or a Google Drive file or something that you can just stash those receipts in for every year. So you have them, you don't have to worry about pulling them out of a shoebox or something.
Kelly Augspurger [00:29:53]:
Yeah, or even like an Excel spreadsheet with those receipts. Do you see people do that too? Like making a spreadsheet throughout the year and document it that way.
Ben Henry-Moreland [00:29:59]:
You can do a spreadsheet to keep track of your expenses for sure. But the IRS won't necessarily take that as evidence of, as the same evidence as, like a receipt.
Kelly Augspurger [00:30:09]:
Yeah, they want the receipt.
Ben Henry-Moreland [00:30:10]:
Since it doesn't actually constitute proof of what you spent it on. So the spreadsheets can be helpful for figuring out how much you actually took out of it. But the IRS will want to see actual receipts.
Kelly Augspurger [00:30:20]:
Okay. Okay. Well, very good, Ben. Final advice. Any final tips, or advice on what people can do, or how they can plan to live well and use their HSAs?
Ben Henry-Moreland [00:30:29]:
Oh, my gosh. So, you know, I mentioned earlier that a lot of advisors say, "Oh, you really just need to max your HSA out. You really need to leave an investment for the long-term. You need to do that to get the full HSA benefits." And that's, I think, true to some extent. But since the truth is that not everyone can do this, I would say that don't let the fact that maybe you can't just invest your HSA money over time and pay all your medical expenses from your bank account, or whatever. If you can't do that, don't let that discourage you from actually taking advantage of HSAs. Because even if you're just putting the money in and then taking it out, you're still basically getting to pay your medical expenses with tax free dollars.
Ben Henry-Moreland [00:31:06]:
And so even if it's not the full triple tax benefit, even if you're only getting two sides of that stool, you're still getting some benefit there. It's still a net positive. And so I would say just keep taking advantage of it. Keep using it. And if at some point you are able to start actually leaving that money in for the long-term, so much the better. But in the meantime, there's hardly a negative way to use HSAs.
Kelly Augspurger [00:31:26]:
Okay, and then, Ben, where can people find more information about you, and HSA planning?
Ben Henry-Moreland [00:31:31]:
Sure so, I write at Kitces.com, as Kelly mentioned. It's really a site made for educating financial advisors but there's a lot of really good stuff if you want to go in-depth on a lot of financial planning topics, including I've written some articles on HSAs and HSA planning for that site, as well. So that's kind of where I live professionally right now and where I've kind of put a lot of my stuff on HSAs.
Kelly Augspurger [00:31:52]:
You probably won't get to the end of the Kitces.com website. It just keeps going and going. There's so many articles, so many blogs. I mean, it is just...it really is endless. I mean, you guys are doing a fantastic job of really providing great resources to advisors and to people to be able to better educate themselves on financial planning, because there is so much to it.
Ben Henry-Moreland [00:32:11]:
So, yeah, I think about 16 years worth of blog posts at this point. So, yeah, there's a lot on there.
Kelly Augspurger [00:32:17]:
There really is. Well, Ben, thank you so much for your time and expertise. We really appreciate it. I know I learned something new and I hope everybody else did, too. Thanks so much. Have a great day.
Ben Henry-Moreland [00:32:27]:
Thanks for having me.
