- In this video, we are going to go through some
of the biggest HSA mistakes that I see
way too many people making.
Now, at the time of filming this video,
my other health savings account videos have almost
a million views with thousands and thousands of comments.
So, I have a pretty good idea
of the mistakes that you need to look
out for based on all of that data.
I'm also going to share some HSA data
with you so that you can compare yourself to your peers.
This is going to be things like the average HSA,
balance by age, annual contributions by age,
annual distribution by age, and a few other things.
If you haven't watched the HSA video
that I released last week,
then you might wanna start there so you are up to speed
on what we are talking about here.
Then come back to finish watching this one.
The biggest and most costly mistake that I see a lot
of people make with an HSA is not keeping a record
of their medical receipts.
This is important because you want a clear record
that the money you are withdrawing from the account is
for medical expenses that are HSA approved.
For example, if you just paid $500 for a pair of glasses,
then you'll use that bill to show proof
of that medical expense
so that you can withdraw $500
from your health savings account.
Think of these receipts
like their dollar bills because they basically are.
They're essentially Willy Wonka's golden ticket
that you need to claim your prize.
There are two ways to use money
from your HSA for medical expenses.
Number one, you can either use the debit card issued
by your HSA provider like the one you see
on screen from Lively, or you can withdraw funds
from your health savings account to reimburse yourself
if you paid out of pocket for any approved medical expenses.
Either way, you are going to want to have a record
of the physical copy of the bill
or receipt that states what the money was spent on.
I'll show you my full proof receipt tracking process
in just a minute.
It's a hang tight.
I've told this story before,
but it's worth repeating so you understand
how this can come back to bite you in the butt.
I worked with a guy who went to Walgreens
and used his HSA debit card on some prescription meds.
Now, he figured it wouldn't be a big deal if he also threw
in a couple candy bars as well.
While candy bars could contribute to type two diabetes,
- Diabetes, diabetes.
- They aren't an approved medical expense, so he was caught
and had to pay a penalty for using some
of his HSA money on non-qualified medical expenses.
The IRS and HSA providers don't mess around with the rules
about only using the money for qualified medical expenses.
So, I would highly recommend it.
Not trying to get one over on them and assume
that they're just gonna catch you.
Keeping track of receipts over the years is even more
important for the people investing some
or all of their HSA money
because they're paying for things out of pocket today.
Then cashing the money in later down the line
so that they can keep money invested
for a longer period of time.
For my HSA investors out there, if you go to cash
in a medical receipt in 20 plus years for an expense
that you paid for today, then odds are you're going
to lose that receipt between now and then,
so we need to find a good solution to track these things.
Before I show you my receipt tracking process,
please help support the adventures of Little Miss Molly
as well as this channel by hitting that thumbs up button,
subscribe button and tapping that notification bell.
Here's my HSA receipt tracking process.
Now, if you find it helpful, then feel free to implement it
for yourself.
If not, then find a better way that works
well for you.
Real quick, I need to hop in here
during the editing process to say
that you do not want to rely
on your HSA provider to track
all of your medical receipts for you.
I've seen a lot of people say this online,
how it's a great benefit that they do this for you.
I completely disagree.
The reason for that is,
if at some point in the future you become disgruntled
with them,
they pissed you off and you're like,
I'm gonna get the heck outta here.
Well, they have copies
of all of your medical receipts, so guess what?
You're stuck with them
and you gotta deal with that whole process
of getting copies if they'll even given to you.
Who knows, and you need these medical receipts
to have a record of these expenses that you had
in the past so you can cash the money out.
That's why I think it's very important to track
all of these receipts and all keep all of those
records on your own outside of the HSA provider.
That way you are not beholden to them forever.
You're going to need three different things.
Number one, a phone camera or some way to capture a picture
of your receipt or bill in person or online.
Number two, some sort of free online storage
like Google Drive.
And number three, spreadsheet software
like Excel or Google Sheets.
Every time you have a medical expense,
you'll take a quick picture.
Then upload it to the cloud storage location of your choice.
Now, make sure the important info is legible.
That means date, name of business, the name of the expense
and the amount that you spent.
I personally have two different folders
in my Google Drive to help me organize everything.
The first one is called to be paid out
and the other is called paid out.
For the expenses where I haven't cashed them in yet,
I'll put the picture of those receipts
in the to be paid out folder.
When I eventually cash out that receipt amount,
I will move it to the paid out folder.
That way I always have a paper trail
in case the IRS wants to audit me a couple
of years after I officially take ownership
of that medical expense.
To help keep track of the hundreds of receipts
I'll eventually cash in on,
I need to name it
in a way that's going to be easiest to filter through
in 20 plus years when I start withdrawing money.
The way I do that is by naming each file
by the dollar amount and the date of when I had the expense.
The reason I start with the dollar amount is
because in 20 years, I'm going to be cashing
out HSA money based on a lump sum amount.
It's going to be easiest for me
at that time to find all of the receipts that add
up to the amount that I'm trying to withdraw.
For example, in 25 years,
if I wanna withdraw, say, $1,000 from my HSA,
I'll go find multiple receipts that add up to $1,000.
Then consider those receipts
as how I am accounting for that money.
I'll then then move the receipt copies
to the paid out folder and be done with it.
There is one more step just to make everything easier
for future me in 20 plus years.
Now, I also account for each expense
in a spreadsheet that I created for myself
which is of course called HSA spreadsheet tracker.
That way I can cross reference the copy
of a receipt that has the amount and date on it
to a line item in the spreadsheet.
Right before or right after a copy
of the receipt is uploaded to my Google Drive,
I'll add the same info into this spreadsheet right here.
As you can see, I had the date, type of service,
the cost company I paid for the service,
confirmation that I uploaded the receipt
and whether or not I've paid myself
out for that particular receipt.
This spreadsheet is also a nice way
to see a running grand total
of how much I'm able to withdraw from my HSA.
Even though I don't plan on touching it
for a very long time.
I need to call something
out specifically to make it crystal clear
because I get a ton of questions about this.
There is no expiration date
for when you have to use your receipts by.
The receipt that you have from the pair of glasses,
doctor's office visit or prescription that you pay
for today can be used to withdraw money from your HSA
in 20, 30, 40, or however many years into the future.
Another common question I see is
around when you incur a medical expense
and when you can withdraw that money from your HSA.
You can only use your HSA money
on medical expenses that you incur
after you open your first account.
So, if you get your first HSA
and start contributing in the year 2023,
then you can only withdraw money from the account
for medical expenses that you have after that point in time.
You cannot withdraw money for medical expenses in the year
say 2022 or any time prior to that.
Something else along the lines of this point,
if you only contribute to an HSA for say five years,
then switch away from a high deductible health plan.
You can still use the money within the account
for approved medical expenses
even after you've left an HDHP.
A ton of people think that if they invest
their HSA money and it grows
to a couple hundred thousand dollars
that there's no way they're ever going to spend
that much on medical expenses.
I hope most people understand this,
but I'm going to mention it anyways.
We are not invincible.
When it comes down to it,
as we get older, we usually spend more money
on medical expenses.
According to Fidelity Retiree Healthcare Cost Estimate,
an average retired couple age 65
in 2022 may need approximately $315,000 saved
to cover healthcare expenses in retirement.
I honestly hope that every single one
of you watching this lives an extremely happy
and healthy life, and if you happen to use less
on medical expenses than what is in your HSA,
then you should be jumpy for freaking joy.
But it's better to be prepared by having a large HSA balance
and not needing it
than it is having a ton of medical expenses.
With barely any money in your HSA,
because you didn't contribute to it since you thought
that there was no way you were ever going
to spend that much on medical.
As I've mentioned before, starting at the age of 65
you can withdraw HSA money
for non-medical expenses without paying the penalty.
Now, you'll still have to pay taxes,
so the account essentially turns into a traditional 401K
or traditional IRA.
So technically, your money isn't locked
into only being used for medical related things.
A big warning to all my health savings account people.
The Employee Benefit Research Institute found
that when an employer contributes money for you as a bonus,
the average individual lowers their contribution amount.
A study from 2019 found
that when an employer didn't contribute a bonus amount
to their employee's HSA, the individual contributed $2,500.
When the employer did contribute a bonus amount,
in this example, $900 worth,
the individual only contributed $1,900 that year.
From a behavioral finance perspective,
this makes complete sense.
Because if they're going to contribute $900 for you,
then their $900 plus your $1,900 contribution brings you
to a total of $2,800 of contributions for that year.
But if you would've continued contributing $2,500
then your total contribution for that year would be $3,400.
I'm going to put my Uncle Jared hat on for a second.
I want to encourage you to not lower the amount
that you were already going to put into your HSA.
Do not let the amount that your employer contributes
for you determine how much you are going to put in there.
If you cannot afford it, then I completely understand,
but if you can afford it
even if it feels just a little bit uncomfortable,
remind yourself that more is always better.
Along the same lines as employer contributions
EBRI also found that higher HSA contributions
were associated with lower 401k contributions.
Once again, I understand that a lot of people
only have so much money to go into investing
so don't take this the wrong way.
But I wanted to point out this trend
that they found so that you can hopefully get ahead of it
and not allow it to negatively impact how much
you are contributing to your 401k.
A lot of people get worried about having to be
on a high deductible health plan so that they can contribute
to an HSA.
But the good news with health insurance is
that we all have the ability to switch it
up every single year.
So, if you get through this HDHP year and realize
that it's just not for you or your current situation,
then it's pretty easy to switch back
to the type of plan that you used in the past.
If it's your first year on an HDHP,
then just consider this a test year.
What I personally did to help ease my worries
was to make sure that I was doing everything
in my power to keep up on my overall health
whether it was making sure my nutritional health was
on point, my physical health, my sleep
as well as my mental health.
Now, all of those things were a top priority to keep myself
out of the medical system to reduce my ongoing expenses
in this area.
If anything, you should use being on an HDHP
as motivation to make those healthy lifestyle changes
so that you can reduce
your overall health costs going forward.
Before I get to how your age group is handling their HSA,
I wanna share a good tip that I've received
from a ton of viewers that comment on my HSA videos.
A few of them are leaving enough cash
in their accounts to cover their deductible
in case anything happens
that investing all of the money beyond that amount.
I love this idea
because it makes you feel safe enough to invest the money
because you already have your maximum payout
amount set aside just in case anything happens.
I know it's always nice to get an idea
of what your peers are doing, so I'm going to quickly run
through some HSA stats so that you can see how you compare
to people in your age group.
11.4 million health savings accounts were used
to gather this information.
Now, at this point,
they only have the data updated through 2020,
but I can't imagine the numbers have changed
by too much between then and now.
When it comes to end of year balances,
you can see that the older someone is the more
they have in their account, which makes sense.
If you notice these amounts
it would only take one or even two years worth
of contributions to put anyone watching this
way above the average of their age group.
So, that could be a goal that you're shooting for.
if you want some motivation.
For annual contributions by age,
it slowly increases, then drops off
when people 65 and older are most likely
in the retirement stage
of life where they're not contributing any longer.
Remember that starting in 2023,
the maximum and individual can contribute is $3,850.
So, find your age group on this graph
and try to contribute more than your peers if possible.
The average distribution by age group
in 2020 increased as people got older.
Then it dropped off
for the 65 and older crowd, which is pretty interesting.
I'd be curious to hear your thoughts
so leave a comment down below with your guests
as to why you think they withdrew a lot less money
than the two age groups before that.
Presence of investments other than cash is the next one.
Now, I'm surprised that there are only two age
groups where 9.4% of accounts are investing.
I wonder if people even know that this is an option
or maybe they're just using it
as a spending account for medical expenses in the near term.
No matter where you fall
on these charts compared to your peers,
the only way you are going to get ahead
and stay ahead is by understanding the most important number
in personal finance, which I talk
about in this video to your left.
Make sure to hit that subscribe and thumbs
up button and check out the description
of this video for additional resources to help you
with financial independence, investing
and ways to help support this channel.
And of course, my dog, Molly.
I'll see you in the next one.
Friends.