Nikki Foley: Jack, you and I were talking before we got started that you love doing these podcasts because it gives you an opportunity to dig into a topic and just kind of dot your eyes, cross your tees, really dig in. So, today the topic is about I’m going to call it a retirement account, and most people wouldn’t call it a retirement account, but the terminology is Health Savings Account or an HSA. Did you learn anything that you didn’t really know when you were researching it for this episode?

Jack Ekholm: I’m pretty familiar with HSA. So, there wasn’t a ton, But it’s always great to dig back into the research and refresh myself on some of the mechanics about eligibility for who can contribute to an HSA in complicated years where maybe you’re moving between health plans of different types, how much can I contribute to an HSA when Medicare comes into play, which we’ll talk about later, how much am I able to contribute in the year I enroll in Medicare and ongoing.

Nikki Foley: Well, that’s fantastic. And I do think, and this is why, as you talked about those couple examples there, when I called it a retirement account, no, is it’s not really a retirement account, but it’s a really great account to use in retirement. And I’m looking forward to hearing from you today to talk a little bit about why I say that and how we position it as we move into retirement. And so, this really is the intersection of health and wealth. And we like to call out how important that health pillar is to us at Paladin Financial. And so, welcome to Paladin Financial Talk today, Jack. I’m glad to have you. I’m your host, Nikki Foley, and you have a recent designation that I’m going to call out here in just a moment. And so, let’s dive into that. But before we do that, let’s talk a little bit about where we’re going with this series and what we’ve been talking about over the last few episodes. We’re in a five-part series right now. And at Paladin Financial, we really believe health and wealth are deeply connected. And so in this series, we’ve answered the why we believe health and wealth are so closely connected and some of those risk and therefore expenses that might show up if we are not addressing these topics together. And then we heard from a featured guest on how to navigate the health care system. And that was Mr. Brian Eck, who is a 30-year-old healthcare industry veteran and he did a really nice job of pointing out some of the terminology as well as how do you navigate all of this for hopefully some cost savings and just being mindful of things as you move through it. Then we got into, well, when should we start having this conversation if we’re working it into the financial piece. Well, now is the time. And we heard from Kinsey Dement, owner of Fit After 40, who helped us identify some preventative measures that we can take at any point in our lives in hopes of controlling medical costs today and in the future, both. And now today, we’re here with you as we address these HSA accounts. So again, health savings account and we’re looking at this from the lens of a financial perspective. And so even though I have a lot of health conversations within our organization, I want to look at it from the lens of a financial professional. And so I’ve invited you today to have this conversation. So a little bit about you, Jack. You’re one of our investment advisor representatives here at Paladin Financial. You’re my featured guest today. But as we talk about where you have been and where you’re going, you started in this industry really early. In fact, you did several internships when you were in college and now just two years out of school, you’ve already attained your Certified Financial Planner certification. So, just talk to us a little bit about why it’s important for you to have the CFP designation, a little bit about why all of this is important to you as you’ve come into your career.

Jack Ekholm: Yeah, absolutely. Well, I just celebrated two years at Paladin and experience has taught me so much, but I realized that experience can only grow your knowledge at a certain pace. So, as somebody newer to serving clients, I wanted to and as a younger adviser, wanted to complement my ongoing experience with a comprehensive and in-depth base of knowledge on the different areas that we operate in as financial planners and also familiarize myself with best practices forgetting to know clients and developing recommendations, presenting recommendations. And I found in my year of education and studying for the CFP exam, I got all of that and more. So, I learned about taxes and insurance and retirement and estate planning and ethics and a lot more. So, I really got what I was looking for and more and proud to be a CFP professional.

Nikki Foley: Well, if you haven’t listened to Jack on any of our previous episodes or heard him in the office, you can tell he is just a wealth of knowledge. He takes all of this really seriously and makes sure that he has done his homework to make sure that you’re offering the right information to people. And I would say just as a little bit of a bragging point, it’s been really impressive to see as you’ve continued to grow your skill set and your knowledge. It’s natural to have people come to you in the organization and ask you questions. So that says a lot about who you are and how much you’ve put into that. And Jack is just a fantastic resource and he is now going to be a recurring guest on our featured guest, a featured adviser on our show. So, we’ll be hearing more from Jack as we continue to move forward. So, did I miss anything else that you want to share about your resume or your philosophy?

Jack Ekholm: Just as I mentioned, just celebrated over two years with Paladin. It’s been awesome. So, thanks for all of your kind words. but fully licensed as an adviser across investment advisory, securities, life and health insurance and annuities and now as a CFP fiduciary across all aspects of whatever I’m helping a client with.

Nikki Foley: Well, Jack is a fantastic resource, and we’re excited to hear from you today as we move into our topic. And so our topic again goes back to Health Savings Accounts. So HSA is the abbreviation and we’ll probably end up using HSA as we talk about it the rest of way of the way through here. Let’s just start with who qualifies for an HSA.

Jack Ekholm: Yep. So, to contribute to an HSA, you have to be enrolled in an HSA eligible health plan, which I’m going to refer to it as an HDHP or a High-Deductible Health Plan as it’s otherwise known. So, for 2026, the requirements for that health plan, and those change every year as released by the IRS. So, it has a deductible requirement and an out-of-pocket maximum requirement. So, the annual deductible has to be at least a certain amount. And in 2026, that’s $1,700 for self-only coverage. So, meaning coverage is just for you, versus family coverage, so covering you and at least somebody else, whether that’s your spouse, a dependent, or more than one, it’s $3,400 for that minimum annual deductible. Now, the requirements for the out-of-pocket maximum are actually a ceiling. So, the out-of- pocket maximum for the plan can’t exceed a certain amount. For self-only coverage in 2026, that’s $8,500. And for family coverage, it’s $17,000.

Nikki Foley: I have to interrupt you here for a second. As you hear these numbers of annual deductibles of just 1,700 or just $3,400. That is a big transition from where we started, and the high-deductible health plans were introduced several years back. Those numbers were really high. And now to see them coming in at 1,700 or 3,400 for a family is really an inviting place for people because it becomes more affordable to be in something like this. And then back to my original question, being able to take advantage of these HSA accounts. So I interjected there, but if somebody hasn’t paid attention to these deductibles, they have come down significantly in years, and so they’re a little bit more inviting and consumer friendly and you can actually afford it is what I’m trying to say. And so, keep going here. I didn’t mean to interrupt, but I wanted to point that out if somebody hasn’t looked at a high-deductible health plan in recent years.

Jack Ekholm: Yep, that’s a good call out, just a refresher on kind of what those numbers mean. So, in terms of your annual deductible, you’re going to be paying pretty much all of your expenses out of pocket until you reach your annual deductible. And it’s only beyond that point that your insurance is going to start contributing to anything. So, even beyond your annual deductible, you still have co-pays., And you might have co- insurance as well. So 8020 co- insurance is really common, but it often depends on the specific service that you’re getting to where you’re still going to be pitching in 20, 30% of those costs and the insurance is only going to cover the rest. And it’s only until you reach your out-of-pocket maximum for the year that everything is going to be covered 100% by insurance.

Nikki Foley:  And I’ll just you’re introducing some terminology that might not be comfortable for some of our listeners. co- insurance, co-pays, annual deductibles. That is one of the things that our guest, featured guest Brian Eck, covered in episode 342 with us. He did a really nice job of slowing down and saying, “These are what the terms mean and how they might show up for somebody.” And so, if somebody is listening and they’re not quite as familiar with some of the terminology, go back and listen to episode 342. It goes quick and he does such a nice job of just setting a foundation for us as we have this health conversation. Great.

Nikki Foley: Yeah. Sorry, I’m going to interrupt you on one more thing there. The other thing that has happened along the way with high-deductible health plans over the years is it used to be exactly how you described it is there was no contribution from the insurance company until you got past that threshold of what you call your deductible. Now, there are some insurance companies that have changed it a little bit where there are true high-deductible plans where that is the rule. And then there are some where they’re willing to contribute, say three appointments whether that’s with a general person or sometimes a specialist and you get those at a low cost or a or even free as part of your plan. And then also preventative appointments such as mammograms as an example also show up. So it continues to evolve as our population are needing things and we’re trying to I would say I think the insurance industry even though it feels like costs are high from time to time they I think they do a pretty good job of trying to meet people in a in a spot where yes you are participating in your own health care which is allows them to hopefully keep cost down but at the same time offering a couple appointments on an annual basis whether that’s three or four. It certainly helps people that if they need to have a single appointment and say the dermatologist and their general practitioner and maybe one other appointment, you can actually do that and have it all remain somewhat affordable. So, sorry to interject again, but I just I know that often times the cost of health care can be really a popular topic and one oftentimes people complain about because it feels like it’s jumping up at a rate beyond the cost of normal cost of living. And so it’s something that is a piece that comes up quite a bit. So just pointing out a little bit different perspective and how they are responding to the needs of the consumer. Yeah. All right, Jack. I got you off track again. Okay, you keep going here.

Jack Ekholm: So we talked about eligibility requirements, but what does eligibility actually get you? So this year in 2026, the maximum contribution you can make to an HSA is $4,400 if you’re under a self only coverage plan. So, let’s say for example, you’re married and you and your spouse both have coverage through work just on yourself. Both of you could contribute that $4,400 to your own respective HSAs. And the maximum for family coverage is $8,750 for the contribution for the year to an HSA. One thing to be aware of there, if both you and your spouse are covered by your workplace plan, for example, and each one of you covers, let’s say, one of your dependents, so technically both of you have your own family coverages. In that case, you would share that $8750 that limit collectively for the year. So something to be aware of there. And then there is a catch-up with HSAs as well. So, in the year you turn 55 and any year after that, you can contribute an additional $1,000 as a catch-up contribution on top of that $4,400 or $8750 depending on whether it’s self-only or family coverage.

Nikki Foley: I have to stop for another moment. I may have thrown us off a little bit, and I just want to call this out and if you want to expand on it, absolutely do, Jack. So, a high-deductible health plan and an HSA do not have to, they’re not technically connected together. They’re separate they’re separate buckets if you want to look at it like that. So you have your health insurance, and you are signed up for it but if you want to elect you can then have this health savings account and it is a separate bucket where money goes into it that you participate in. And so I just want to make sure because I interjected a couple times there that I didn’t confuse any of our listeners if this is a brand-new topic to them. So you don’t have to have an HSA if you have a high-deductible health plan. But Jack, you’re going to tell us all the reasons why it’s a good idea to do that. So again, these two things do not have to live right next to each other. You can have the HSA by a different company, and it’s managed by somebody completely differently than your health insurance plan. So I just want to call that out.

Jack Ekholm: Yep. Well, that’s a good call out as you’re thinking about this. It’s the health plan that you are covered by that it makes you eligible to use this account, But the account is separate from that coverage from that insurance company and their providers for the HSAs, which we’ll talk about as well.

Nikki Foley: Much more eloquently said than I did there, Jack. So, good job.

Jack Ekholm: It’s just some eligibility quirks to be aware of as well. We talked about requirements to be eligible to contribute to an HSA, but of course that main requirement being covered by a high-deductible health plan. Well, what if for example I start the year on a high-deductible health plan, but I make some changes during the year and let’s say at some point during the year I switch to a traditional health plan or a non-HSA eligible health plan. Well, in that case, the amount you can contribute to the HSA for the year is a pr-rated amount of that maximum, the $4,400 or $8750 based on the number of months during the year out of 12 of course in which you were covered by the high-deductible health plan on the first of the month. So, let’s say I switched and my traditional health plan coverage became effective July 1st. So, I had six months under the high-deductible plan. I had six months under the traditional plan; I can only contribute half of that maximum to the HSA for the year. And then you might be wondering vice versa, if I start the year on a traditional plan, but I later switch to a high-deductible plan, how much can I contribute? And the rules are a bit different here than you might imagine. As long as you’re covered by the high-deductible plan by the first of December, you can still make the full annual contribution to the HSA for that year. Only quirk, there is then you have to continue to be covered by the high-deductible plan through the following year. So, at least 13 months following when you first became covered by the high-deductible plan.

Nikki Foley: And so, thinking about when might that happen? Well, some employers do not do their annual renewals on a calendar year. Sometimes it happens in August, as an example. That might be an example to go with. Or you have a qualifying event of some sort. So, you add a child to your world, you get divorced, you move and have to get on a new health plan for some reason. Those might be other qualifying events that happen.

Jack Ekholm: Yep. And another one to be aware of too is once Medicare comes into play. So it’s important to note you are no longer eligible to contribute to an HSA once you’re enrolled in Medicare. So the complicated piece comes into play in that year you initially enroll because likely it’s not going to be right on January 1, it’s going to be at some point during the year. So in that year in which you enroll in Medicare, you can contribute to an HSA still, but it’s again only a prorated amount of the maximum based on the number of months in that year before your Medicare coverage begins. So similar to starting the year on a high-deductible plan and switching off of that in this case to Medicare, let’s say that it becomes effective July 1st. Again, it’s going to be just half of that amount, but again, it depends on number of months you’re covered by each. So be aware of that quirk as well.

Nikki Foley: Doesn’t this already sound so complicated as we talk about this?

Jack Ekholm: A lot of moving pieces for sure.

Nikki Foley: There are and I would say that is a very popular one that you just brought up partially because we really work with a niche of retirees and pre-retirees but there is a lot of misconceptions and just, I don’t even think it’s necessarily miscommunication but it’s when you go into starting Medicare and when you should sign up for part A. It is part A that triggers this scenario that Jack was just describing is a lot of people believe that at age 65, they have to start part A even if they’re continuously employed by and covered by an employer’s group plan or a spouse’s coverage. And the reality is you don’t and if you do start A it kicks you out of the running for having an HSA and being able to continue to contribute. So, this is where I would really encourage you to work with a professional who does this all day every day and helps with the Medicare transition or the transition from an employer plan to Medicare. So, again, here I go interject. I’m never going to let Jack get through all he wants to say if I keep information. Well, did we cover everything there that was under the kind of explaining what an HSA is?

Jack Ekholm: Yes. Yep.

Nikki Foley: So, let’s go into the kind of the zinger of what everybody likes so much about an HSA account. And this is what we would refer to as the triple tax advantage. So, break that down into just very basic lay person. What does that mean when I say that? And why would somebody like this?

Jack Ekholm: Yep. So, its triple tax advantage. The HSAs really are the most tax advantaged account because they have three tax advantages. Other accounts have maybe one or two of them, but I can’t think of any other account out there that has all three. So, the first one is your contributions to an HSA are tax-deductible. So, let’s say you earn $100,000 in the year and you contribute the maximum of $4,400. You’re not taxed on that $4,400 that you contributed to the HSA in that year. So, you get a deduction for what you contribute once money is in the account. And let’s say it’s growing within your HSA. We’ll get investment options for the account later, but that growth is all tax deferred. So, as opposed to like a standard investment brokerage account where you’re going to be taxed each year on the dividends and interest earned by the account, any realized capital gains, if you’re selling and buying investments within the account, that’s all tax deferred within the HSA. So, you’re not taxed on that each year. And then eventually once you take money out of the HSA, as long as you’re taking it out for a qualified medical expense, it comes out tax-free. So some additional advantages here. If you think of something like IRA and Roth IRAs, you get the tax deduction up front. Assuming you meet income requirements and are under a certain level you get a tax deduction for putting in money upfront but when you take out money from an IRA it’s all ordinary income and taxed at that point so it doesn’t have all three. Roth IRAs and 529s you have the tax deferred growth and the tax-free withdrawals assuming you’re meeting requirements but you don’t have the tax deduction up front so that’s why the HSA is really unique because it has the three advantages really across the board that are you’re only one or two with the other accounts.

Nikki Foley: And this is where I would say the two really cross over that wealth and health conversation when we get into this type of description and understanding of what an HSA is. I would say, oftentimes HSAs get introduced by an HR professional or a benefits coordinator for an employer and this isn’t the lens that they are looking through. They are looking through how can we, A) maybe lower cost your medical expenses. How can you help participate? Why is this plan good? And they’re explaining it purely from the health lens. And never once does this tax conversation really become part of their description or even presentation. And so this is where I just think these two things interweave so nicely. And it’s important that you understand the benefits from the financial professionals’ lens that Jack is going through today.

Jack Ekholm: And as you mentioned too, they’re if you’re talking about the account with an HR professional, they’re talking about it through the health lens. And there’s some built-in mechanics to the account where they’re incentivizing you to use whatever amount you contribute for your medical needs. And that comes into play with the tax-free withdrawals. So, I mentioned it’s required for those to be tax and penalty-free for you to be taking them out for qualified medical expenses. If you’re taking it out not for a qualified expense, the withdrawal instead of being tax-free is actually entirely taxable as ordinary income and also subject to a 20% federal penalty. Now, it’s worth noting that 20% penalty does go away beyond age 65. So, if you’re 65 or older, you can take money out of your HSA, not for a qualified medical expense, and not face the 20% penalty. It’s kind of just like you’re taking money out of an IRA at that point, but you do lose one of the three main tax advantages of the account. Other things to note here, in terms of additional advantages, I mentioned the tax deductibility of contributions upfront. related to contributions. IRAs and Roth IRAs have certain income limits to be aware of. So, after a certain point of income, you’re no longer eligible to contribute directly to a Roth IRA. You can always contribute to an IRA, but you lose the deductibility of it based on your income. That doesn’t come into play for HSA. So, there’s no income-based phase outs or limits to be aware of. You actually also don’t need to have any earned income to contribute to an HSA where you do to contribute to an IRA or a Roth IRA. So, some additional flexibility there.

Nikki Foley: Yeah. And I think that piece comes up quite a bit as people are retiring and moving into a phase where they maybe haven’t moved to Medicare yet and they’re needing coverage and can they continue to contribute to an HSA during that period where they don’t have earned income. That would be a spot that again it’s nice to have the lens of a financial professional and some guidance as you talk about that.

Jack Ekholm: Yep. So, those are kind of the basics of the taxability of the account. I did mention though to get the tax-free treatment and penalty-free treatment, it has to be a withdrawal for a qualified medical expense. So, you might be asking yourself, what qualifies as a qualified medical expense? So, a few pieces here to be aware of. Number one, it has to be an expense paid by you, the owner of the HSA. So, let’s say I have a bill for a certain medical expense, and my parents pay for it for me. I can’t then go to my HSA and have them reimburse me for something I didn’t pay for. So you have to pay for it as the HSA owner and it has to be for care for you, your spouse or a dependent. So it can’t be for anyone, anyone else. It can’t be for your parents, for example, unless they are a dependent of yours. And you can’t be reimbursed by your HSA for a medical expense that you’re also claiming for an itemized deduction. So there is an itemized deduction for medical and dental expenses in excess of 7.5% of AGI. So, if you use an expense toward that itemized deduction, you can’t also get reimbursed for it from your HSA. So, something to be aware of there. In terms of common qualified medical expenses that you can use your HSA for, insurance premiums for long-term care insurance do qualify up to certain limits based on your age, and those limits are set by the IRS. You can also use it for premiums for health care continuation coverage, something like COBRA if you leave your employer or laid off, for example, health care coverage while receiving unemployment benefits. So, I mentioned no earned income requirements. That’s another situation where it might be applicable if you’re laid off and unemployed. You don’t have income coming in, but you’re paying for coverage through the marketplace, for example, and you can still use your HSA dollars to pay for those insurance premiums. And then also premiums for Medicare. You can use your HSA in addition to Medicare Advantage plans. One thing to be aware of is that you cannot use it for premiums for Medicare supplement plans. So one exclusion to be aware of there. And other common examples. So obviously doctor visits, hospital stays, prescription drugs, medically necessary equipment like crutches and wheelchairs, and the list really goes on as you think about expenses that are medically necessary. The things you’re not going to see covered are ones that aren’t medically necessary. So, if you think of general fitness expenses like your monthly gym membership expense or personal hygiene products like toothbrush and toothpaste for example, but really any of them can become eligible expenses as long as they are medically necessary. So if that’s not automatically implied, you can include with your documentation a letter of medical necessity from your doctor saying that this expense was recommended by them was something of medical necessity. So common examples there like getting a massage wouldn’t normally be an HSA eligible expense, but if you have a note from your doctor saying that’s a treatment they recommended, it was for a certain condition, it then can become an HSA eligible expense. So there is some flexibility there. It’s also worth noting that some over-the-counter expenses are automatically HSA eligible. So over-the-counter medications, things like pain relievers, cold and flu meds, allergy medications, etc., those are HSA eligible expenses even though you might not expect them to be. So there’s a lot of flexibility and the list goes on. I would encourage you, with your specific HSA provider, they will usually have a list of what they consider qualified medical expenses and options for submitting additional documentation if something is beyond the realm of what they list.

Nikki Foley: And have you noticed when you go shopping at Amazon or you see new things out in the marketplace that seem to be healthcare related, oftentimes they call out their HSA or FSA. Which is nice to know, especially sometimes when there’s a new gadget out there or there’s something that might be applicable to you. It’s nice to know right up front. And I think companies have done a great job of making that call out. It benefits them as well knowing that agreed they can attract some people that might have some dollars put away for this purpose. Okay. So, now that we have gone through a really nice comprehensive view of things, let’s talk about some examples of when an HSA account comes into play and mistakes that we have seen people make along the way.

Jack Ekholm: So, the first one that comes to mind for me in terms of HSA mistakes is using a high-deductible health plan just to have access to an HSA when a traditional health plan is really more appropriate for you. So, yes, the benefit you’re going to get from maxing out an HSA And letting it grow over time are substantial. We talked about the triple tax advantage status, but for some, excuse me, for some people, those benefits still won’t outweigh the cost savings of using a traditional plan, even though it takes away your ability to use and contribute to that HSA. So, making that determination first of which health plan is more appropriate for you should always be your starting point. So, generally, a high deductible health plan makes more sense if you have low medical expenses because, as we talked about, you’re going to be paying your expenses out of pocket with the exception of some preventative visits, for example, that they might cover automatically regardless of where you are relative to your annual deductible, but you’re going to be paying generally 100% out of pocket till you get past the high deductible and then still paying some until you get past your even higher out-of- pocket maximum, and I’ll mention there too, a lot of people will frame it as the high deductible health plan makes sense if you are, the more healthy that you are, but that doesn’t always correlate with having low medical expenses. It just means you either don’t seek or you don’t anticipate needing medical care or services beyond those basics that might automatically be covered by your plan. In contrast, the traditional health plan which has lower deductibles and out-of-pocket maximums, even though it has higher premiums that you’re paying month-to-month, it can save you substantially more in coverage of expenses if you have higher medical expenses. So, for example, if you have regular prescription drugs, especially really expensive ones that I’m going to need to pay for this for the entire year. Here’s the cost of that. If you have a condition that requires you to see especially a specialist, but otherwise go in to see the doctor very frequently and even if you’re very healthy but you’re a hypochondriac and you just want to know that I can go and seek medical treatment without having to worry about the bill that’s going to hit my inbox after I go and seek an opinion from a medical professional, a traditional health plan might make sense for you in that case as well. So, it’s important to start there with that analysis for yourself and your family before blindly committing to a high-deductible plan just for the HSA access.

Nikki Foley: Yeah, you’ve done such a nice job of describing that the way that I try to look at this and I look at it somewhat like these insurance companies are all businesses and so what levers can they pull to help control cost? And in a good way for them, but you may not look at that as the consumer, but the more you’re willing to participate in your own health care, the more that they can push down cost on their premium. And so, as you’ve described, traditional co-pay plans usually come with a higher premium. High-deductible health plans come with a lower premium because you’re willing to participate up until a certain point. So, it certainly as a business, those insurance companies appreciate that. And the other way to look at this is oftentimes, and this is terminology that I hear from individuals that are, kind of pre-retirement or going into retirement is you’re willing to bet on yourself for longer. And so you are a fairly healthy individual. You have done and taken a lot of different preventative measures. You have this track record. So, you’re willing to pay a lower premium and play a little bit of the insurance game that I’m going to bet on myself for as long as possible, pay lower in premiums, but I’m putting this money in this HSA account that in case the world goes crazy around me and I have a catastrophic year, then I can pull from this account, but at least I’m saving it and I have the benefit of controlling that money versus just handing it over to the insurance company year after year through higher premiums. And so just kind practical application and thought process. Those are some of the things that I hear from people and how they describe it along the way.

Jack Ekholm:  That’s good. Second mistake in terms of HSAs and there’s kind of two parts to this and it really comes down to using your HSA funds at the wrong time. Now the first piece of that is using your HSA funds too soon. So you can reimburse yourself from your HSA for qualified medical expenses as long as they occur after the account was established. This is a really important thing to note. So you could be 70 and retired and take your money out of your HSA justifying it with a medical expense that you incurred and wasn’t paid for by insurance or any other source when you were 25 as long as the HSA was established at that point in time. So you just need to keep good records as you incur medical expenses so you can later use those records to justify your withdrawals from the account. Generally in terms of records that we’re looking for, keep medical bills or explanations of benefits that you get from your insurance company. Show the receipt of eventually you are paying that bill. And if, like I mentioned, it doesn’t fall in that list of HSA eligible medical expenses, make sure to include or keep a prescription or letter of medical necessity where applicable, as required, to prove that it was of medical necessity, essentially.

Nikki Foley: That’s one that a lot of people don’t know that you can look back so far as long as you have the documentation. And I mean, you think about every year there’s it adds up quickly. medical can add up quickly in some years. And so, it’s a good point to bring that out and take a moment to pause and know that keep records and don’t get rid of those records because you never know when you need to be able to pull that cash out.

Jack Ekholm: Yep. And it’s important because with that timeline flexibility, since one of the primary benefits of an HSA, as we discussed, is that tax-free growth of funds in the account. The longer the funds sit in the account, the more time they have to accumulate that tax-free growth. So acknowledging there’s a limit to how much you can contribute to an HSA and give access to that tax-free growth within the account. This suggests a strategy and, in my opinion, at least while you’re working and potentially into retirement as well, but at least while you’re working and you have the cash flow of your work income, don’t use your HSA. Instead, pay for medical expenses from cash. Cash that’s not invested and it’s not growing. And if it did, it wouldn’t be tax-free anyways. So, pay from cash. Keep good documentation of your medical bills as they come up and as you’re paying them and keep track of your receipts as well to be able to later access your funds for those medical expenses but otherwise let the funds in your HSA sit there and continue to grow tax-free. And sure, you can use your HSA contributions as you go, and you would effectively be avoiding paying taxes on income that you use to pay for medical expenses since you’re getting that deduction for amounts you take or that you put into the account and turning around and taking them out within the same year. But it’s important to remember using this year’s HSA contribution maximum for self-only coverage, and this is just an example. If you did that over the course of a 40-year career, assuming you maxed it out each year, took out that entire maximum contribution to pay for medical expenses, you would have avoided paying taxes on $176,000 of medical expenses, avoided income, avoided taxes on that amount of income for what you paid for medical expenses. If instead you left that money in the HSA, invested aggressively over that 40-year time frame, let’s say at a conservative rate of 7% per year on average, and didn’t touch that money, but continue to max out the account. At the end of your career, you’d be walking into retirement with $878,000 of money you could access tax-free with justification from the past or for medical expenses that you’re incurring throughout retirement. So, that’s a huge difference.

Nikki Foley: And you think about the long-term care aspect that a lot of times people have a hard time planning for that and it’s one that often times they gamble on a little bit. They may not specifically set money aside for it. Knowing that you have an HSA account that can participate in those costs potentially is a really comforting thing I would imagine for a lot of people.

Jack Ekholm: Yes, absolutely. And that kind of ties in with that second piece of the mistake of using your HSA funds at the wrong time. The second piece of that being I talked about using it too soon, but you also don’t want to wait too long to use your HSA funds. So you have to be cognizant of the tax treatment of any of your HSA funds that you don’t use during your lifetime. If I don’t use any of my HSA funds or whatever amount and I leave that to my spouse, my spouse can step into my shoes, take over the HSA essentially as their own and continue to benefit without any immediate tax implications. But if it’s inherited by anyone else, let’s say me and my spouse have both passed and now we’re leaving it to one of our children, the account ceases to be an HSA at this, the last of our date dates of death and the entire fair market value of the account is fully taxable as ordinary income to the inheritor in the year that we pass away. So, while the HSA is the most tax advantaged account while you’re alive, it’s the worst account to leave as a legacy asset. If you think of it relative to your standard investment brokerage account where they’re going to get a step up in basis to the fair market value and they could sell that without any immediate tax implications or a Roth IRA where it’s all tax-free to them assuming they meet certain requirements and even with an IRA even though it’s all going to be taxable to them they’re going to have at least 10 years to distribute the amount from that account. So there’s at least some tax planning flexibility in that situation. You don’t have that with the HSA. So, what that suggests is to get the most benefit from the account, you and your spouse should aim to spend down the account before both of you pass. So, to balance that with giving the funds as much time to grow because there’s kind of two competing priorities here, a good strategy and one we often recommend to clients is again while you’re working, leave the account, continue to contribute to it, but let it grow and leave it for retirement. In retirement, you can use it for Medicare and Medicare Advantage premiums. You can use it for health care, which is generally going to be higher in terms of your needs for it in retirement and then, as you mentioned later, the long-term care needs which usually crop up much later in retirement. So the reason the HSA provides such a great tool for planning from the long-term care perspective is because the funds come out tax and penalty-free if used for long-term care expenses. So, for example, if you have a long-term care need that worsens and eventually you have to go into a facility and that costs, let’s say, $10,000 a month to pay for a year of your care, we have to take out $120,000 from accounts to pay for that. If that’s all coming from an IRA, so pre-tax income that you saved over the course of your career in a 401k, for example, we’d have to gross that up for taxes. If you’re paying let’s say 30% effective rate in taxes instead of the $120,000 to get you that amount, we have to pull out $171,000. So the benefit of the HSA where that comes into play is in a high-income year like that and let’s say you’re also taking out withdrawals for other expenses to avoid pushing you into a really high tax bracket. We can pull from the HSA and it’s tax-free for those needs. So it’s a really valuable tool.

Nikki Foley:  And I also think about then you keep having impacts Irma could come into that. So additional your part B premium for Medicare then pushes up if you have a very high year like that. And so you can see where HSAs are a great retirement planning tool and a retirement account where this can all it’s not a retirement account, but it really plays into that conversation. Anything else that mistakes that you’ve seen that I that are worth adding here before we wrap up this portion of the question?

Jack Ekholm: Yeah, one other thing that I could think of is if you’re on a high-deductible health plan and you’re not at least or at least haven’t opened an HSA. So, considering what I just discussed about documented medical expenses being justification for tax-free withdrawals from your HSA at any time as long as they occur after your HSA was established. If you’re on a health plan that’s HSA eligible, you better open up an HSA as soon as you can. Even if you’re not maxing it out or making substantial contributions, maybe just contribute $25 a paycheck or something small and manageable but open up that time frame where medical expenses can become justification for using the account and start keeping good documentation of your medical expenses.

Nikki Foley: Yeah, I’d add one other thing to the kind of these mistakes question is oftentimes employers will also be willing to contribute to an HSA account a portion And so it’s essentially free money. Again, back to where you started, making sure it’s the right type of account for you. A high-deductible health plan is the right account or type of health plan for you before you just take advantage of free money. But that is another thing that oftentimes people don’t take advantage of because they’re in a traditional copay. They just haven’t weighed the pros and cons between that traditional plan versus a high-deductible health plan. So, you mentioned this earlier and I don’t want to leave before having this conversation. Options for investing in HSA. We’ve talked about all these beautiful benefits, but how does this actually work? Is there a portion of it that you can invest in and how might I go about doing that?

Jack Ekholm: Yeah. So, investment options within your HSA account, it’s going to depend on who’s providing your HSA. So most people have group health insurance through their employer, and their employer usually has an HSA provider that you can sign up with. They make it convenient where you can have your contributions directly coming out of your payroll and you can make your contribution elections on your all-encompassing HR platform. So most people usually go with HSA provider. But be aware as long as you’re enrolled in a high-deductible health plan and can prove it, you can open an HSA with any provider. So generally you can see them provided by banks, credit unions and brokerage firms. Most providers similar to 401k or 403b providers within the account are going to give you an investment menu. Let’s say 20 to 30 mutual funds that you can choose from most commonly. But what I’m seeing more and more now with the clients that we work with is that their HSA provider also allows a self-directed brokerage account option. Meaning you can transfer funds from your HSA to that self-directed brokerage. It stays within the HSA wrapper, but now you can choose beyond that list of just 20 to 30 mutual funds, essentially anything in the investable universe of whatever brokerage platform that they’re partnering with. So that could be Charles Schwab, Fidelity, Vanguard, etc., for example. So that gives you a lot of additional investment flexibility. It’s also worth noting that many of the providers are going to require you to keep a certain amount in cash within the account. So, it’s usually one to $2,000 at all times and only excess balances in excess of that can actually be invested. So, again, if you’re letting funds sit in your account and continue to grow, I would suggest keeping just the minimum in cash and investing the rest. So, in terms of strategy, growth is tax-free within the account as we talked about and comes out tax-free eventually if used for qualified medical expenses. So the longer it can sit in the account, the more tax-free benefit. Since for that reason, for most people, that time horizon until they’re going to eventually be using their HSA funds is many, many years. That suggests an aggressive but diversified equity portfolio usually makes the most sense and is most prudent for an HSA account. Again, to maximize the potential growth, you can get uninvested funds within the account. But as you near and enter the point where you’re going to be using your HSA funds, just like any other account, you’d want to move that allocation to be a bit more balanced and incorporate some conservative buckets within the account that you’d be able to tap into for those needs even if the market is down to avoid locking in losses on the aggressive portion. Now, some HSA providers, and this might be the case for you, don’t allow any amount of your balance to be invested. And I would suggest avoiding these. So if you have HSA money with such a provider, you can find a new provider, open an HSA with them and transfer your funds to the new provider that should allow investment options and again follow the strategy to get the most tax-free growth within the account over time.

Nikki Foley: And Jack, you’ve done a fantastic job of describing all the benefits and how this works. When you step back and you look at the kind of practical application of when you’re introduced to an HSA, who’s introducing it to you? Again, we’ve already said this, but usually a benefits manager or an HR team, and they’re not viewing it from the lens of a financial professional and the financial aspects. And so, some of I hope that there’s some new pieces of information we’ve shared today that others might not know simply because of how they were introduced to it, but there’s a few things that, how does this actually work that I want to point out, when you’re working with an HR team, they, as you suggested, they usually have something that’s built into their platform. And if it is one of those providers that don’t allow you to invest, usually that HR team is going to allow you to if you have an old HSA or even if you want to open a new one to have your payroll team deposit right into that HSA account. And so sometimes you just have to ask a few of those questions. And HSA accounts are so much more common than they used to be that this is not going to be the first time that HR and that payroll team has encountered it. So simply asking is a starting point if you’re just not quite sure how to introduce an existing account or the concept of you don’t want to use what is right available through the HR platform. So don’t hesitate. This is you looking out for your money and taking full advantage of some of the pieces. The other piece that people might not know is that they’re first learning about an HSA account. So, all of this sounds fantastic and it’s living in this bucket that you have described, but how do I get my money out of it? How does this work? Well, if you’re really using it for medical expenses, oftentimes you’re given a debit card or a credit card that ties to that account and you simply swipe it when you need it, including when you walk up to pay for a co-pay or you’re buying a product at a CVS or an Amazon or whatever it might be. You can use that debit card. That is often times the simplest way to go about it. The other way that still exists and it may be more common for different providers who have HSA accounts is you have to upload receipts into it and then get a reimbursement back. And so those all get in more to the lens of the HR and the function of how these work where Jack has spent such a nice job of weaving together that financial and or that health and wealth conversation for us. But the mechanics, don’t let that stop you if you are not somebody that has had an HSA account and you’re not familiar with it. Familiarize yourself to the best of your abilities using your benefits team or your HR team. And then start asking others around you. You’d be surprised how many people have exposure and have taken advantage of these. Just ask the basic questions. And then back to where I had said this, before there’s a lot of moving parts to this and everybody’s going to look through it through the lens that they know. Inviting a professional like a financial professional or somebody that works even in the Medicare space to share their story and how you can use it to your advantage on some of the things that Jack has shared with us today. Well, Jack, as we wrap things up, is there anything else you’d like to add to our conversation or a piece of advice that you would give to our listeners?

Jack Ekholm: Yeah, I just hope our listeners can see through what we’ve mentioned in the conversation the HSA offers great benefit and great power, but with that comes great responsibility. And lots forfeited if you’re not using your HSA properly if you’re not taking advantage of it or if you are, but you’re using it in the wrong situation. So, it’s important to get that dialed in for you. And that’s exactly what we help our clients with. So, if you want help doing that for yourself and your family, please reach out to us so we can be of service and get you on an optimal track.

Nikki Foley: Jack, I have to ask, that was a little Spider-Man in there, wasn’t it? With great with great power comes great responsibility. I mean it has been like number one grossing movie at the box office for what five weeks straight or something like that. So yeah. So you should feel exactly and you didn’t I knew you were exactly well how about a resource for somebody who is listening. We will put definitely when we wrap this up and we publish the show we’ll have it on it’s a lot do the best that we can to really pull out some of the features that you’ve talked about in our website. So paladinfinancialtalk.com but what else is out there if you wanted to give a resource to our listeners?

Jack Ekholm: If you’re going to pick just one, I would point you to IRS publication 969. So, it’s very dense, but in researching details on accounts like HSAs, I always suggest starting with the organization that’s actually responsible for overseeing and publishing the rules and regulations related to them. In this case with HSAs, it’s the IRS. So, publication 969, it’s going to provide a comprehensive set of information on HSAs as well as other tax favored health plans. So if you want to learn about HSAs versus FSAs, MSAs, HRA’s, it also has information on those. So I would suggest starting there.

Nikki Foley: Well, fantastic. We certainly appreciate the expertise that you offered us today and the professional lens that you were looking through from that financial respect. So, if you are interested in taking the next step and learning more either about how HSAs might play into your overall financial plan, you can go out to our website and offer we offer a 15-minute no obligation conversation to help bring clarity on this topic. And so if you go to paladinfinancial.com is our main website and you can click the booking tool in the top right corner and you can choose any one of our advisors to reach out to or you can simply call the main phone number at 651-842-8406. As I mentioned a moment ago, we also have our website that we actively want you to go out to. So whatever topic that we’re talking about, we put an entire web page out there. We put the resources that we have referenced throughout and that’s paladinfinancialtalk.com that you can go to as well. It also has the booking link there. One of the things that I like to point out as we have talked about this medical and the health and wealth conversation throughout this entire series is we have available to our listeners this interactive flowchart titled ‘Reviewing My Health and Life Insurance Policies’ and it really helps clients understand their options. It gets into this Medicare and this HSA conversation and it’s a simple flowchart that they can download at paladinfinancialtalk.com as well. So paladinfinancialtalk.com to receive that download if you’re interested. Follow along on YouTube, Facebook, Instagram, LinkedIn, and all of our websites too if you want more information, we publish this on YouTube. We put several of our little snippets out there on all the social media pages. So, Jack, thanks for being with us today. We certainly appreciate it. You were fantastic with all the information. And for our listeners, thanks for listening and we look forward to having you on the next episode.