The Stealth Retirement Account That Most Americans Don't Use

Are you trying to find more ways to save for retirement so you will be able to retire early? Let me explain how you can use a Health Savings Account (HSA) as a stealth retirement account by investing inside of it. Currently only 4% of Americans that have HSAs unlock this powerful potential. (Source: Devenir 2019 study; link below)

First, you have to be covered under a High-Deductible Health Plan (HDHP) before you are allowed to contribute to an HSA. If you are covered under an HDHP, the maximum you are allowed to contribute in 2024 is $4,150/single or $8,300/family (an additional $1,000 if you are over 55 years old). You do not pay taxes on money contributed to your HSA, and if the money is withdrawn for eligible healthcare expenses the funds are not subject to any penalty or taxes. Most people use their HSAs this way. The money goes in…then it comes right back out to pay for medical expenses. This is a great way to save money on taxes for eligible health care expenses, but it is not utilizing the full potential of your HSA.

With a few simple adjustments, you could turn your HSA into a stealth retirement account.

Pay Out-of-pocket for Medical Expenses

This allows you to accumulate more money inside of your HSA every year instead of depleting the account every time you have an eligible medical expense. The longer you are able to keep the money in your HSA the more time you are able to let it grow.

Save your Eligible Healthcare Receipts

If you chose to use your HSA as a stealth retirement account, make sure you save your eligible healthcare receipts. This would then allow you to withdraw money from your HSA, to reimburse yourself for the past eligible medical expenses that you paid out-of-pocket earlier. Currently, the IRS doesn't have a time frame for when you are allowed to reimburse yourself. This means you could spend $500 out-of-pocket today and submit it for reimbursement years later. The medical expenses have to have occurred while you were covered under an HDHP though!

Invest the Money

Investing your HSA money could allow it to grow into a significant amount depending on what the time frame is and what return percentage you are able to achieve. Below are examples if someone invested their HSA money for 30 years with an annual return of 7%. Your numbers will be different depending on the length of investment and returns. (Source: Calculator.net; link below)

“Because of the effects of inflation, a 50-year-old couple in 2019 planning to retire at age 65 can expect to spend about $405,000 on health care in retirement. A 40-year-old couple faces $455,000 in expenses...” (Source: Annuity.org; link below)

These three things would allow someone to take full advantage of using their HSA as a stealth retirement account. HSAs allow investing in a triple tax advantage account. The money contributed reduces your taxable income while the qualified withdrawals and investment growth are tax-free (If the withdrawals are not qualified this becomes tax-deferred growth).

Other Things to Consider

If you withdraw money from your HSA for non-medical expenses you have to pay taxes and a 20% penalty, but after you turn 65 the 20% penalty goes away. This allows you to optimize your tax efficiency; by choosing which accounts to withdraw money from instead of having to fully depend on Social Security and Medicare. Additionally, most investors are in a lower tax bracket in retirement since they are no longer working, so there may even be another benefit to delaying the tax until later in life.

Not all HSAs are equal. Some charge high fees, some limit the amount of money you can invest, some limit your investment options, and others don’t allow investing at all! Your employer usually chooses which institution they use for HSA contributions but once the money is in the account you have full control of what happens with the money. Check to make sure it is a good one. If not you may be able to move your HSA money to a better institution. If you would like assistance in moving over your HSA, deciding what investment options to invest in inside your HSA, or any other HSA-related questions contact me and I would be happy to help. Our firm uses Fidelity, which charges no account fees and offers a wide range of investment options (Source: Fidelity.com; link below)

Sources:

https://www.devenir.com/research/2019-midyear-devenir-hsa-research-report/

https://www.calculator.net/future-value-calculator.html

https://www.annuity.org/retirement/health-care-costs/

https://www.fidelity.com/go/hsa/why-hsa

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Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Intro to Planning for Widows

Some of my most meaningful client relationships have been with widows.  There are many reasons behind this, but widows face a different set of circumstances than couples do.

Whether a recent widow or a soon-to-be widow, a partnership has or is in the process of ending.  You may have made financial decisions with your spouse or maybe these decisions were made separately, but now you are forced to make these decisions on your own.  In a best-case scenario, you already have a good relationship with a financial advisor.  But if not, you should look for someone who has been down this path before and understands what you are facing.  You have so many decisions to make with a new set of facts and having the right financial team in place could really reduce the stress of these decisions.

With so many financial decisions looming, the list of considerations can be daunting. Income taxes, estate planning, investment advice, cash flow planning, long term care planning, electing Social Security…Any of these on their own is difficult. But so many of these are interrelated and one decision in one area has impacts in others as well.

Many people don’t NEED someone else to help them make a decision, but they prefer to have someone to work with through tough decisions.  When the decisions are now all in your hands, this may seem off and you may want to bounce your thoughts and ideas off someone else before making the final choices.

When you are overwhelmed, it is more difficult to make tough decisions.  Having an experienced advisor on your side can make the mountain of choices seem much more manageable.  Not all decisions have to be made immediately and a professional can help you prioritize.  Often, we make a list of what needs to be addressed with a corresponding timeline for each item.

The fog will eventually lift, but the decisions you make in the meantime are incredibly important.  With so many different thoughts coming your way and a range of emotions, it pays to have a reliable partner to guide you through this period and beyond.

FOYER CHATS PODCAST // Financial Planning for Your Business AND Your Life with Leanne Rahn

Financial Planning for Your Business AND Your Life with Leanne Rahn

Episode Description

Today's episode we chat with Leanne Rahn - a fiduciary financial advisor specializing in helping new business owners and newlyweds! What is a fiduciary you ask?! Well we will ask that question for you ;). Leanne shares all about financial planning for your business AND your life. Take away tactical tips and tools to create a killer financial plan JUST RIGHT FOR YOU! Leanne makes talking about organizing the back end of your business and setting those big financial goals SO much fun, we already know you'll love her!

3 Reasons Business Owners Should Consider Rolling Over Their 401k to an IRA

So you took the leap and started a business. Whether that was recently or years ago, to you I say congrats! What an accomplishment to leave your old employer to begin a passion-driven career that you design. With all the excitement your new business brings, it can be easy to forget about that old 401k you had with your previous employer. Here are three reasons why you should consider rolling over your 401k to an IRA:

1. More Investment Options

   Typically, 401ks have a set list of investment options you can choose from. This limits you to what’s on the paper in front of you. Yes, there is a chance you could have a great list of investment options, but there is a chance it could be the other way around too.

   IRAs open up many other investment opportunities. Instead of potentially only having a few mutual fund options, you can choose from a variety of different mutual funds, ETFs, individual stock, bonds, and more. IRAs have more choices to fit a whole range of different needs. Who doesn’t love more customization?

2. Lower Fees

   With more choices, may come lower fees. Management fees, administrative fees, and fund expense ratios can have a big impact on your retirement savings. This will look different for every 401k plan, but it is worth looking into. 

   If your plan has costly mutual fund options, IRAs could open a door to potential savings by choosing lower-cost investments. By rolling your old employer plan over to an IRA, you could be getting more money back in your pocket come retirement. 

3. Better Communication

   Your old 401k may be sitting at an investment firm that may have long hold times, poor communication, and more pains in your side. It may be harder to get information on your plan than if you were a current employee.

   With an IRA and working with a Fiduciary Financial Advisor, you can have direct access to me and the company your IRA is held at. Instead of being an old employee, you are my client - a relationship I take seriously. No long hold times or lack of communication. Instead, one-on-one communication, questions answered, and your best interests first. 

Don’t let your old 401k be a nagging concern as you continue to drive a pathway in your business. Let’s look at your old 401k together and figure out the best option for you. More investment options, lower fees, and better communication may be in your future. Sounds like a pretty good future to me. 

Here, at Fiduciary Financial Advisors, we take our fiduciary oath seriously. We hold these five principles:

1. I will always put your best interests first

2. I will avoid conflicts of interest

3. I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional

4. I will not mislead you, and I will provide conspicuous, full, and fair disclosure of all important facts.

5. I will fully disclose, and fairly manage, in your favor, any unavoidable conflicts

Action Point Financial Planning, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.