Women's Money Wisdom

Episode 234: All About HSAs with Bill Stuart

August 27, 2024 • Melissa Joy, CFP® • Season 4 • Episode 234

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Unlock the secrets to maximizing your Health Savings Account (HSA). Discover strategies that can turn your HSA into a powerful financial tool for both immediate and long-term goals. 

Melissa Joy, CFP®, is joined by Bill Stuart, a leading expert who has been pioneering HSA knowledge since their inception in 2004. In this episode, they guide you through the myriad benefits and complexities of HSAs, revealing how these accounts combine the best features of IRAs and FSAs. Learn how to save pre-tax dollars, grow your savings tax-free, and make tax-free withdrawals for qualified medical expenses—all while ensuring your plan is HSA-eligible. 

They discuss treating your HSA as a lifetime account, allowing funds to accumulate tax-free without the pressure of annual reimbursements. They illustrate how paying out-of-pocket for medical expenses can let your HSA grow, which is especially beneficial during retirement. 

They also explore the investment potential of HSAs and their role in bridging the gap between early retirement and Medicare, highlighting the importance of selecting the right beneficiaries to ensure continued financial support for surviving spouses. 

Tune in to understand how you can leverage HSAs to their fullest potential and safeguard your financial future. 

Key Takeaways: 

 

  • HSAs offer immediate tax benefits and can be used as a powerful tool for retirement planning. 
  • Eligibility for HSAs is based on specific criteria, including the type of health plan and coverage. 
  • Contributions to HSAs are tax-deductible and can be made by both individuals and employers. 
  • HSAs offer investment options, and the funds can be used for qualified medical expenses tax-free. 

 

Resources:  

 

 Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional. 

Melissa Joy:

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and the founder of Pearl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence and be strategic in order to grow your wealth. As a woman, you work hard for your money and I'm here to help you make the most of it. Now let's get into the show.

Melissa Joy:

I think that health savings accounts, also known as HSAs, are one of the most misunderstood but also one of the biggest opportunities that people have in personal finance. So I've been anxious and excited to devote an episode to that topic today, and we have a guest who's really devoted his time to getting the word out when it comes to HSAs. Bill Stewart has been working with health savings accounts since they were introduced back in 2004. So we're celebrating the 20th anniversary this year. He has served as the chair of the American Bankers Association HSA Council's Compliance Committee, and he's written two books specifically on HSAs. You can follow him on LinkedIn We'll make sure to have links to resources and show notes and read his HSA Monday Myth Buster, hsa Wednesday Wisdom Column and HSA Question of the Week column. Hey Bill, welcome to the podcast.

Bill Stuart:

Thanks, Melissa. Look forward to a conversation. I know that HSA question of the week column.

Melissa Joy:

Hey, Bill, welcome to the podcast. Thanks, Melissa. Look forward to a conversation. I know that HSAs are later to the game. Many of us were familiar with either cafeteria plans or FSAs, flexible spending accounts that had to do with our reimbursing us for our medical costs. So you know, let's roll back, say it's 2003 and I'm going to explain what this HSA is that's coming. Or for somebody who just has no idea, they've seen it in their benefit options or maybe they don't have it as an option what is a health savings account?

Bill Stuart:

Yeah, so you mentioned cafeteria plan and health FSAs and health savings accounts are a lot like FSAs in terms of immediate tax benefits, but they're so much more powerful. Think of them sort of as the child of an IRA and a health FSA. So these are individually owned accounts that allow you to put aside money on a pre-tax basis. So you make pre-tax payroll deductions, your employer can put money into them. The money goes into the. Make pre-tax payroll deductions, your employer can put money into them. The money goes into the account pre-tax or tax-free. It grows tax-free. It comes out tax-free when it's used for qualified medical expenses. So it's really the only vehicle that the average American has that experiences no tax friction whatsoever. As long as you use it for medical expenses, then money goes in tax-free, grows tax-free, comes out tax-free. That's the beauty of it and the simplicity. So, at a very high level, that's what a health savings account is.

Bill Stuart:

Now you can have one only if you are enrolled in what the IRS calls qualified high deductible health plan. Nobody in the marketing industry would ever call anything a high deductible health plan. We call it an HSA qualified plan. Essentially, the plan has to have a deductible of at least $1,600. If you cover only yourself, or $3,200 if you cover at least one other family member, and all services have to go toward that deductible. So the average employee today, particularly in small groups, has deductibles higher than that and HSA qualified plan deductibles are often higher. But the point is it's a fairly mainstream medical plan at this point, so have that medical plan. It's a fairly mainstream medical plan at this point, so have that medical plan. Don't have any disqualifying coverage and you can take advantage of this wonderful financial account called the health savings account.

Melissa Joy:

Well, that's worth noting. First, you need to be sure that what you're enrolling in does qualify as that qualified high deductible health plan and oftentimes you can. Oftentimes they're paired if it's kind of a benefit set up and in some cases you may have a lower deductible option where you don't have that HSA option and it could be even advertised as the HSA plan and in some cases I do ask clients to ask their HR or ask their insurance agent hey, is this a high deductible option? Just to double check and make sure, because that is one pre-qualification before you can make this contribution.

Bill Stuart:

That's right. And what gets confusing is you could have a plan that has a $2,000 individual deductible and you'd say, oh my gosh, that's an HSA qualified plan, but it covers certain services outside the deductible. It charges a $25 copay for an office visit or $10 copay for a generic drug. That plan is not HSA qualified. It's not just the level of the deductible but it's the fact that all non-preventive services have to go toward that deductible. So early in the plan year you're always paying the contracted rate rather than a copay for services and, as you mentioned, when an employer is offering this, the broker, the employer, know it's an HSA qualified plan. That's typically not a problem. It gets a little bit dicier for people who are buying in the non-group market to make sure that that plan, just because it says $2,000 deductible, really is an HSA qualified plan.

Melissa Joy:

Okay. So now let's fast forward and assume that, yes, you're still in the game. You've determined that you have an eligible plan. Now the HSA contribution is separate from the plan itself, correct?

Bill Stuart:

plan. Now the HSA contribution is separate from the plan itself, correct? That's right. So you are paying a portion of your premium for the medical plan and then, on top of that, you now have this financial account that's independent of the medical plan, it's a personal financial account, but now you have the opportunity to do pre-tax payroll deductions to put money into that account as well.

Melissa Joy:

It's interesting. So both you and, in some cases, your employer too, if it's an employer-sponsored plan may be able to contribute or have that option correct, that's right.

Bill Stuart:

So what we find in the industry is about two-thirds of employers do contribute to an.

Bill Stuart:

HSA in some form do contribute to an HSA in some form and the average among those who do is about $900 for individual coverage and about $1,800 for family coverage. So employers are generally putting money in. Not always. Some employers will do it for a few years and then, as employees build their balances, the employer ratchets back its contributions and in some cases an employer really has no financial option other than offering a HSA qualified plan with its lower premium and says to the employees I can help you with coverage, with the insurance premiums, but I just can't help you with the deductible. You're on your own.

Bill Stuart:

And one of the best ways to fund an HSA, as you mentioned, you know, very often employers will offer more than one plan. If you just take the difference in premium between that lower deductible plan, which is going to have a much higher payroll deduction, and the HSA qualified plan, that may well be $20, $30, $40 per pay period. Just stick that into the HSA. Your paycheck, net paycheck, won't go down, but you'll be putting money into the HSA systematically that otherwise, if you enrolled in the other plan, you'd just be giving to the insurance company.

Melissa Joy:

Interesting. I like that Sometimes. Know, sometimes a little mental accounting is really helpful and you're also helping on your taxes in that case.

Bill Stuart:

Yeah, I think it's really important, Melissa, because so often people say they look at the list of the two or three plans the employer offers and they say, oh, this is the best plan. It is only a $500 deductible. Well, yeah, that's less than the $2,000 deductible, but if you're paying $1,500 more in payroll deductions for the premium on that, then it's the same. It's the same and you've lost that. $1,500 is going to the insurer, whether you have expenses or not. If you choose the higher deductible plan and put that $1,500 in your HSA, if you have a bad year, you're giving it right back to providers. If you have a good year, a low claim year, then you're keeping that money. The insurance company is it. That's your money to spend on future expenses.

Melissa Joy:

Well, let's get into that spending category now. So for many people and this is just going to have to be a necessity the HSA is really a current wallet, because they may or may not have emergency reserves on hand, or by habit, whenever they have these types of accounts, the first thing they do is, you know, kind of poke up the debit card, so when they drive through the pharmacy at CVS, they're getting money back into the bank account or they're using that debit card and the money's coming right out of the account. So that I wanna cover, before we talk about longer term uses of the HSA. How does it work? What are you eligible to use funds within the HSA for?

Bill Stuart:

If you're familiar with a health FSA. It is the same list. So it includes all your cost sharing on your medical plan, your dental cost sharing, your vision cost sharing, over-the-counter drugs, medicine, equipment and supplies All of those services. Any part of the bill that you owe is a qualified expense and it also includes things that aren't covered by the medical plan. You know, not all medical plans cover acupuncture, but I've had acupuncture before and it was great for relieving what I needed.

Bill Stuart:

I could pay for that out of my health savings account with pre-tax dollars. So we're not limited to what the medical plan covers. In addition, with a health savings account, it can help you in several occasions when you may be a little short of money in your life In helping you with premiums. One of those times is when you are between jobs is when you are between jobs, if you are collecting unemployment insurance or you are continuing coverage through COBRA, you can pay your medical premiums with HSA dollars tax-free. And then in retirement, when you're enrolled in Medicare, medicare has premiums and you can reimburse the Medicare premiums directly out of your HSA on a pre-tax basis.

Bill Stuart:

So it helps not only with those qualified medical expenses but also pulls in the insurance sometimes when you need that money the most.

Melissa Joy:

So we're saying you can't always pay for your insurance premiums with the HSA plans, but in some cases you can.

Bill Stuart:

That's right. Yeah, it's just limited to that unemployment or COBRA. So one of the questions that always comes up is what happens if I retire at age 60 and Medicare won't let me in until age 65? What do I do? Well, you, if you have the option of COBRA for 18 months, there's 18 months worth of premiums you can pay out of your HSA. But then to bridge the gap between there and age 65, if you don't have a spouse or other plan to jump on and you buy a plan in the non-group market, those premiums are not a qualified expense. You can't take money out of the HSA for those premiums. If you do, it's included in your taxable income and you pay a 20% penalty. So you'll lose about half the value of everything you take out of the HSA if you're using it for non-qualified expenses.

Melissa Joy:

Got it. So let's talk about timing too. So if you're familiar with the FSA world, it's like used to be 1230 once a deadline. Now there's a little bit of a grace period, but it's fleeting. It's use it or lose it. Basically, In the HSA world that's different. Is that right?

Bill Stuart:

It is totally different. Yeah, there are a couple of key features here. Number one there is no plan year with an HSA. What you've described, the health FSA, is absolutely right. You have 12 months to spend your balance. Your election, your employer may give you a little more time, either with a grace period, or allow you to carry over a small balance into the next year, but essentially you've got to spend that money and you've got to file for claims promptly.

Bill Stuart:

With an HSA, it's a permanent lifetime account. It's like your checking account. It doesn't go back to zero at January 1st. The money is always there, it accumulates over time and you never face a deadline to reimburse expenses, which I think is really cool. I mean, I've had an HSA since 2009 and I'm a saver. I want to keep that money in there, growing tax free, to help me pay medical expenses in retirement, and I'm fortunate that in a lot of cases I can pay for expenses out of my personal funds after-tax funds and leave money in the HSA.

Bill Stuart:

But I also keep my receipts. So every year at the end of the year I have a summary for my insurer of how much of my deductible I've met. I've got some explanations of benefits. I've got dental bills. They're all thrown in a three-ring binder in those plastic page protectors. If I suddenly needed $20,000 today, I could take that out of my HSA and report that as a qualified distribution, even though I'm paying for a new car with it, for a new car with it, because I accumulated qualified expenses. I have the receipts to show. I could have reimbursed these things between 2009 and today, but I didn't. I'm just simply deferring reimbursement of my son's braces in 2012 and my wife's contact lenses in 2014. So you never lose the opportunity to reimburse. No one ever says to you ah, you missed the deadline, sorry, you forfeit your money.

Melissa Joy:

Well, that's interesting. I'm thinking about those early retirees, by the way, where, like, once you run out of Cobra then you're on perhaps a plan from the exchange or something like that Then you couldn't be reimbursed directly for your health care premiums, but you could say, oh, I've been waiting to use these receipts in this particular year, so that could be a great gap.

Bill Stuart:

That's right. And the other thing that you can do in that scenario is you could buy a low premium plan on the exchange. Let's say you buy a plan with a $5,000 individual deductible, knowing that if you have a bad year and incur those expenses, that money can still come out of your HSA to pay your deductible expenses. So we've identified a couple of different ways of working around that little, bridging that gap between early retirement and Medicare.

Melissa Joy:

Well, I'm loving that optionality and we're kind of sneaking into the part of the conversation that really gets geeks like us excited because the HSA is not just a wallet. It can also be used as an investment account, as an additional retirement account, hopefully, in many cases, for your medical expenses. Tell me a little bit about well. First of all, a lot of people don't know that they really, you know, keep it in cash and it's like you know just waiting for the next reimbursement.

Bill Stuart:

But tell me the difference. Yeah, so most of the leading trustees of health savings accounts in the country and you know the names Fidelity and hsa, bank and health equity and optum and bank of america and wex. They are offering a suite of investments and the the. The option could be anywhere from a hand-picked list of two dozen to four dozen mutual funds or it could be a full investment platform. So it varies by trustee. Some of them want to give you a smaller menu because they fear that paralysis by analysis that somebody will be so overwhelmed seeing they can buy 8,000 different stocks that they'll do nothing. So here are some mutual funds and if you are a conservative investor, here's the direction you should go.

Bill Stuart:

For others like me who want to play the market a little bit more, the idea of having a full brokerage account at an HSA is really exciting.

Bill Stuart:

So in most cases you're going to have to keep a certain threshold of cash. The trustee is going to say you need to keep $1,000 or $2,000 worth of cash. That way you always have money on hand to pay an unexpected bill without having to worry about liquidating investments while the market is down. So you will have to keep $1,000 or $2,000 in cash is down, so you will have to keep $1,000 or $2,000 in cash. Other than that, you're free to invest as much of your balance after that as you want. Now, as you mentioned, not many people take advantage of it. Probably, I think it's 10% or so of accounts 37 million accounts, by the way so about three and a half to 4 million actually have balance invested. The rest are 100% cash. The problem with cash is well, it's great if you're using your health savings account like a health FSA and the money comes in and the money goes out just as quickly.

Melissa Joy:

But if you're saving long term.

Bill Stuart:

And inflation forget the last couple of years, but inflation is two or three percent a year in the general economy and it's higher for health care costs.

Melissa Joy:

yeah.

Bill Stuart:

Medical is typically twice that. So if medical expenses are going up 5% a year in a normal span and the interest you're getting is one-tenth of 1% or two-tenths of one percent on your cash, you're actually losing serious buying power every year. Just as you would in a retirement account At age 25, you've got all your money in cash.

Bill Stuart:

You're not going to get ahead. That way You'll feel safe because you'll never lose but you'll never really gain. So with an HSA it's a matter of determining your just like a retirement account your time horizon, your level of risk. But put that money to work. You know that the stock market as a whole over the last hundred years has returned about 9% a year. That's including depressions and upticks and downticks and pandemics and dot-com bubbles and everything else. So put the money into something where it's going to grow to at least keep pace with medical inflation.

Melissa Joy:

Yes, past performance doesn't predict future returns, but there's certainly when you're thinking about this asset long-term. I'd also mention this account to your financial planner if you're working with someone like me, because so many times I find we get through all the list of accounts and then they're like oh yeah, there's an HSA. Well, there may be a misidentification of that investment option, but these are often clients that do have high income. They have the options. This would be perfect. There's a lot of money piling up in the bank and then they're ending up spending this HSA account. I can even speak for personally.

Melissa Joy:

My husband carries the insurance for our family as a small business owner and then he signed up for a new HSA plan where they were just automatically reimbursing him. As he went and I opened the account statement nine months into the year, it was like whoa, whoa, whoa. No, we don't want to spend it now, we'd rather invest it for later. That kind of gets into the area. Sometimes your employer dictates. But how do you research HSAs if you do have a choice and you're kind of self-directing?

Bill Stuart:

Yeah, so you make a very good point that most people get their HSAs through their employer and their employer is going to choose one trustee to administer. So you're going to get XYZ HSA and that's the only one your employer is going to deal with. You still have the option of opening a second one on your own and moving money from one to the other. It's not a complicated process. You can do that one to the other. It's not a complicated process, so you can do that. But also, as you mentioned, if you're buying in the non-group market or your employer says I'm not sponsoring anybody, go out and find your own. Or you leave a job and you have an HSA with that employer and it's $4 a month maintenance fee and you don't want to pay that. So you want to go out and see what there is $4 a month maintenance fee and you don't want to pay that. You want to go out and see what there is.

Bill Stuart:

It's as simple as doing an online search. You will get so much information. You'll get rankings of which one's the best for spenders, which one's the best for savers. The key point to really understand is that there are differences among them, just that there are differences among checking accounts, the most important thing is to have an HSA and be funding it. That's 90% of the battle. The other 10% is which one's going to pay a little more interest, which one has a little bit lower fee, if any, which one has a little bit lower threshold for investing, which one has more investment options. But the big benefit of this is the immediate tax savings and then, secondarily, is how you can build the value of your balance over time. The tax savings is going to be the same no matter which one you choose. So when it comes time to really start building your balances growth for the future, then start looking at whether this account or that account is going to get you there faster.

Melissa Joy:

That's so true, and if I can just editorialize for a moment, I know why this is. But the beauty is the big rock that tax savings and that investment option. We call it a triple tax-free play. When we're in the financial planner world. It is sometimes frustrating in those HSA accounts. They're necessarily often small accounts which for banks, are probably a major pain in the butt to administer, and so there are a lot of here and there fees that can be frustrating or annoying. That is not. My favorite part of the HSA game is HSA administration. So do be wary of those low balance fees or the quarterly statement fees and things like that Kind of tune into the statements and see what's going on.

Bill Stuart:

Yeah, and usually, even if there are more and more HSAs that don't impose fees the ones that do a lot of times you can avoid them. You know it's $2.50 a month, but that's waived. You have a balance of $2,000 or more. Okay, keep a balance. You waive that. You mentioned the quarterly statement. You know they may charge $2.50 to do a quarterly statement, but they'll usually give you the option of checking a box and getting that electronically. There you've saved the money. So really the only time you should be paying fees is you may pay a small fee for the investment platform. It's like a checking account. If you have an overdraft, you overspend the account. You could get whacked with a fee, but if you're using it right, the industry is so competitive now and there's such compression of fees that it's easier and easier to either get a no fee account or to easily avoid those fees. But they could be there. Make sure you understand them before you put the money into the account.

Melissa Joy:

Well, I love that increased usability. Well, we will, in resources, provide you with some reputable lists of kind of you know. Here are some of the details on some of the bigger players and HSAs. How much money can you put into an HSA?

Bill Stuart:

The IRS has a limit every year and it's adjusted for inflation. So in 2024, if you covered only yourself it's a one person contract you can put in $4,150. If you're on a family plan it's $8,300. And then in addition to that, anybody who's age 55 or older can put in an extra thousand dollars a year. So in my family my wife is actually the one who carries the insurance now I always did it, she does it now. So she puts in $8,300 for our family contribution. She puts in an extra thousand dollars as her catch-up contribution because she's age 55 or older. And I put $1,000 into my own HSA because I'm 55 or older. So $10,300 tax savings reduction in taxable income, which for us translates to about $3,000 or so of actual tax savings in a given year because we're fully funding our HSAs. Now, not everybody can do that, obviously, but every dollar you put in is going to reduce your taxable income by a dollar. So whether it's $1,000 or $4,000 or $8,000, you're getting that tax benefit right up front.

Melissa Joy:

And is that reduced by the amount that your employer puts in? So if the employer puts in $1,000, is it?

Bill Stuart:

Yeah, the contribution limits are from all sources. So if your employer puts in $1,000, your aunt gives you $100 for your birthday and writes out the check to your HSA, that can go into your HSA. But it's all sources combined. It can't be more than that 4150 or 8300. By the way, in 2025, those figures go up from 4150 to 4250 and, for a family, from 8300 to 8550.

Bill Stuart:

So they're adjusted every year for inflation. That adjustment figure comes out early in may, so we already know what the figures are going to be for 2025. Unfortunately, the one thousand dollar catch-up contribution is not indexed for inflation, so it remains at the same level it did at 2004.

Melissa Joy:

Thousand dollars just buys a whole lot less today than it did then well, I did not know until this year it probably was one of your LinkedIn posts that you can do that thousand dollars for each of the family members, and I'm going to be turning 50 next year, even though Jeff who will be under 50, will be in the HSA plan, so I could do my own listless HSA thousand dollars. Start right.

Bill Stuart:

Got to be 55.

Melissa Joy:

Oh, 55.

Bill Stuart:

There I go, thank you you so, age 50, you can start making a catch-up contribution to your retirement plan, but you got to wait another five years for your hsa thank you, bill.

Melissa Joy:

So any other you know you're a myth buster but any other kind of secrets, cool parts or things we didn't cover that we need to make sure people know. There is so much I know.

Bill Stuart:

I know there is a ton. I do want to make a couple of caveats here. There is disqualifying coverage we have to be careful of. So to open a fund in HSA, you have to have an HSA qualified plan. We already talked about that. You can't be somebody else's tax dependent, which simply means that, yeah, you got a 14 year old kid who starts earning. Which simply means that, yeah, you got a 14-year-old kid who starts earning babysitting money. You can open a Roth IRA for the kid. You can't open an HSA because he or she is still your tax dependent. And the third thing is you can't have any disqualifying coverage. The big villains here are number one Medicare. So once you enroll in Medicare, you're no longer HSA eligible. Now I am age 66, I hate to admit so I am eligible for Medicare at age 65, but I haven't enrolled yet. So I'm okay, I can still contribute, but once I enroll in Medicare I will not be able to put any more money into my HSA.

Bill Stuart:

The other thing that can trip people up is a general health FSA. We're all familiar with them. It's not unusual for a family to have two of them. You know both spouses work and they've got a kid who's got braces that year, you can double up on that. A general health FSA looks in the tax code like a medical plan that pays first dollar reimbursement for medical expenses. So that would be disqualifying.

Bill Stuart:

And it's not only you, the subscriber to the medical plan, but your spouse's health FSA automatically covers you under federal tax law, even if you didn't know that, even if your spouse doesn't have a medical plan at work. So you've got to be very careful about that. A general health FSA is disqualifying but there is something called a limited purpose FSA that reimburses dental and vision only. You can have that and be HSA eligible. So those are the things you just have to be careful of. It's unfortunate that with that FSA thing now your health benefits become pillow talk among spouses. They've got to make sure that one of them doesn't do something at work that disqualifies the other one from funding an HSA for the family's medical expenses.

Melissa Joy:

Well, the HSA is certainly high on opportunity, but also a high degree of difficulty, so I'm so glad that people like you, bill, are out there to keep us informed, and we covered that same topic in our Introduction to Medicare episode recently with Joanne Giardini-Russell, because that is a stinger if you mess that up.

Bill Stuart:

If you had Joanne on your podcast. Your people are absolutely getting the best information, but you know, melissa, there's one other thing I want to talk about, because I know a lot of your listeners are women.

Melissa Joy:

Yes.

Bill Stuart:

So it's really important to understand. Health savings accounts are agnostic with respect to sex. They don't care whether you are a man or a woman. But there are some reasons that HSAs are probably more important for women. Women tend to have higher medical expenses and we used to always joke when I was in the insurance industry we love having single male guys. They don't get pregnant, they don't get sick, and when they get sick they don't go to the doctor.

Melissa Joy:

Last thing they do exactly so.

Bill Stuart:

So they're low claimants. Women tend to listen to their bodies and when something's wrong they know it and they're going to the doctor more often. So that's one factor. But you know, women have two unique things medically that drive up their, their costs. One is they give birth and two is they go through menopause, and those are two things that men don't do.

Bill Stuart:

So women are naturally, on average, going to have higher claims than men, so more expenses that need to be reimbursed somehow. Why not reimburse them tax-free? The other issue that women have is, on average, they live about two years longer than men, which means at the end of their life, when medical expenses are highest, they're going to have two more years of medical expenses than the average man. So they need more money set aside for medical expenses in retirement and, as we've mentioned, the HSA is the only tax friction free vehicle they can participate in during their working years, which means every dollar they put into an HSA is going to have greater spending power than the same dollar in either a traditional or a Roth 401k or IRA. So really good during their working years and really great for them at a time in life where they may have less income and fewer resources to have that extra money coming out tax-free to pay their medical expenses toward the end of their lives.

Melissa Joy:

Well, what a powerful conversation, and that is some of the art of financial planning is working with a professional that is able to have these discussions with you talking about. You know, in our family we're really worried because there's an age gap perhaps between him and her and we want to make sure the person who's likely to live the longest isn't in a bad place because of the cost, the medical costs of the first person, the older person, things like that. So there's so many different strategies, whether we talked about the early retirement funding with helping with premiums, or perhaps really the HSA becomes that hot for longevity protection where you live longer than you expected and, of course, going into that, we cover it. Like it's really important to make sure you have the right beneficiary designation to your HSA so that it could be something that's convertible from you to your spouse through a beneficiary designation if you pass away first.

Bill Stuart:

So you know, Melissa, twice you've mentioned financial planners and I just want to say something quickly about financial planners. You know we all have primary care physicians, we all have our favorite mechanic for our car, but so few people rely on a financial or retirement professional to help guide them through their finances while they're working and in retirement. And about 10 years ago I was interviewing a number of firms. I wanted some retirement professional advice and I can recall going to one of them and see and he's saying, how much do you have in your tax-deferred IRA? I'm like, oh, that's great. How much in your Roth deferred IRA? I'm like, oh, that's great, how much in your Roth, how much in your HSA? Well, at that point I had about $75,000. I said $75,000. He's like, oh, yeah, whatever, what was the Roth? Again?

Melissa Joy:

Because he's not going to manage it right. Typically, there's not an advisor managing that account.

Bill Stuart:

Yes. So the lesson there is if you're looking for a financial or retirement advisor and they don't understand the power of health savings accounts, keep looking. And Melissa's absolutely right In a lot of cases they're not going to be investing that money, so there's no revenue stream in it for them. But if they don't understand what an HSA is and what it can do for you, then I would argue they can't give you the best advice that you could get for planning for retirement. So really think hard. You know the next people I interviewed. I told them oh my God, that's great.

Melissa Joy:

That is a great number.

Bill Stuart:

That's one of the five schools of our retirement planning and nobody else understands this. And boy, you're so far ahead of people there. I knew I'd found the right people, because they are looking at everything in retirement, and that was so important to me.

Melissa Joy:

Yeah, I mean I'm sitting there thinking, if you're not advising on the HSA, I want to be talking to you or my you know successors here at the firm. I want them to be talking to you and saying, oh gosh, I'm so glad Melissa recommended that, versus like thinking, oh, I'm kicking myself because we don't have that HSA. So you really need someone who is going to be objectively thinking in your best interest, because all the fruits and rewards come back to everybody involved when you have somebody with that kind of naturally aligned relationship.

Bill Stuart:

Exactly.

Melissa Joy:

Well, Bill, we will make sure to have links to resources in the show notes, including your contact details. Thank you so much for joining us today.

Bill Stuart:

Melissa, thank you, the pleasure's been all mine and listeners. Feel free to follow me on LinkedIn. As Melissa said, I publish two or three original articles a week on health savings accounts maybe more than you want, but pick and choose. Pick and choose. We just look at them from a lot of different angles and it's all free information and it's designed to help you.

Melissa Joy:

I love it, thank you. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in this episode, the best way you can support the podcast is to forward an episode to a friend or leave a review. Go to pearlplancom and the podcast link to get all the resources and links mentioned.

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Melissa Joy, CFP

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