HSA The Best of Both Worlds Archives

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How I Used my Health Savings Account to Buy an Airplane!

Posted on October 20, 2021October 22, 2021 by Quest Trust Company

Estimated reading time: 4 minutes

Self-Directed IRAs are often looked at as vehicles to help you save for the future, but some people have learned how to benefit from those accounts earlier than retirement age. Certain accounts have specific rules that can provide unique perks and benefits to those who know how to properly use them. The Health Savings Account is one of those special plans.

Health Savings Accounts, or “HSAs”, have unique rules that allow the account holder to take tax-free distributions for qualified medical expenses. As long as you can show that the distribution is for a medical expense that occurred during the time your account was open, you could be able to pay for those medical bills completely tax-free with the money you’ve been growing in an HSA.

With a new investments strategy popping up almost daily, it’s no wonder Nathan Long, President of Quest Trust Company, was able to buy an airplane engine using his Health Savings Account. Below is Nathan’s story. This example can show you what is truly possible with the powerful HSA.

“Let’s take a minute and tell a story.

There’s me. That’s my airplane. That’s a 1952 Cessna 170 B. I bought that during a midlife crisis! At one point, this airplane needed a new engine, a continental O-300. So, I went out. I took 40 something thousand dollars out of my Health Savings Account completely tax-free, and I bought myself an airplane engine.

Now, many of you guys here probably don’t want an airplane engine. All right. In my story, take out the term “airplane engine”, and replace it with whatever toy you want! New car? Boat? Trip to Europe? You name it!

But… is an airplane engine a qualified medical expense?

Let’s look at it. This is what happened.

The story starts years before the one of the airplane engine. Years before, I’d opened a Health Savings Account. I was married to who is now my ex-wife, and we had just opened a Health Savings Account. We did have a family plan and I made a contribution of $5,650 to it. When I made that contribution, it was towards the end of the year. I was immediately able to write that off. I was also in a very high tax bracket that particular year, so I got a really nice write off – a $2,000 dollar type of write off that immediately came out of my taxes.

At the same time, my wife had to get her teeth repaired. It was very expensive. It was $35,000- $37,000. I could have just put my money into the Health Savings Account one day and removed it the very next day. Would that have been worth doing? Yes! It would have negotiated me that tax, just by putting it in and putting it out.

That’s not what I did at all. I put the money into the account. I reached around to [my] hip…broke out the Southwest credit card, picked up the miles, and bought the teeth. Does everyone follow that? And then I went on. What did I then do with the $5,000 in there? I started to invest it.

I invested by doing a term called “partnering”. I would take my $5,000 and I’d partner it with my IRA, which had a larger amount. Then, maybe I would do an equity appreciation loan or option. Over a period of years I did different investments, but I was always partnering, allowing the larger amount of money to help carry the smaller amount of money. Over a period of years, I had never made another contribution to this HSA, but I had grown that HSA to some $45,000 – $50,000.

Fast forward… seven years. Midlife crisis. Harrison Ford’s got a plane like this and I wanted to go get it! But… it needs an airplane engine, so I need an airplane engine. What happens? I go to my Health Savings Account and remove the money tax free and penalty free.

How? You can save receipts from years past, as many as you need.

When you’ve paid the taxes on the money, you can take receipts from years past to use the tax deduction in the future. Even though I didn’t have $40,000 in the account whenever the expense occurred, I could grow that $5,000 and then remove the money tax free and penalty free.”

Do we have your attention yet? This story shows how powerful it can be if you start to learn to build wealth inside of a Health Savings Account. Get the best of both worlds and ask us how you can qualify for an HSA today – 8281-492-3434.

Using Health Savings Accounts to Stay Healthy AND Save Money at the Same Time!

Posted on September 14, 2020December 15, 2021 by Quest Trust Company

Estimated reading time: 5 minutes

With health expenses on the rise, many people are looking for ways to reduce the amount they have to spend across the board. One tool some investors are turning towards for their medical expenses is the Health Savings Account, or HSA.

A Health Savings Accounts is a useful investment vehicle that can be used to save for medical expenses and reduce your taxable income. At Quest, Health Savings Accounts can be self-directed to invest in all sorts of alternative investments that can grow the account, and then be used to take qualified distributions tax-free. However, these accounts aren’t for anyone. Certain qualifications limit some people from being able to have this account.

So, how do you know if it’s right for you? In order to qualify for an HSA, you must be enrolled in a high-deductible health insurance plan (HDHP). HDHPs aren’t always the best option for some people and may be better off with an insurance plan, but in most cases, the HSA allows investors that qualify the freedom to invest tax free.

Since these plans are re-defined each year by the IRS, the minimum deductible they must have and the maximum amount a plan-holder can spend out-of-pocket is always being re-determined. Visiting healthcare.gov can provide some of the current amounts, but it is very important to look for plans specifically listed as “HSA-compatible” if this account is one you are considering. Some employers that offer high-deductible health plans also offer HSAs, but if not, opening a separate HSA account (as long as you have a qualifying plan) is always possible.

Why Someone Would Want A Self-Directed HSA

Health Savings Accounts offer quite a few advantages. Of course, one is the freedom to invest beyond the common public assets. But, there is more to an HSA than that!

Being able to take tax-free distributions for qualified health expenses is arguably the biggest reason why most people chose to open a self-directed HSA. Other reasons such as flexibility and additional tax advantages are also positive attributes to consider when thinking about a Health Savings Account.

Unlike a Flexible Spending Account, HSA balances roll over every year, so you never have to worry about losing your savings at the end of the year. Even if you can no longer contribute to an HSA (once you turn 65 or become enrolled in Medicare), you can always continue to use the money for out-of-pocket qualified medical expenses. However, if you use the money on non-eligible expenses, you would still have to pay income tax on that amount and an additional 20% penalty if you were still under the age of 65.

The HSA has aptly earned the name of “The Best Of Both Worlds Account” and rightfully so. When you contribute to an HSA, those funds are either tax-deductible (if you opened your own account) or pre-tax through payroll deductions (if through an employer), and as the account grows, you do not pay any taxes during this time.

Then, when you go to take a distribution for an eligible health expense, once again there are no taxes on those withdrawals. Contributions to Health Savings Accounts do not add to your tax burden and you are actually taxed as if you make less money. That is a great tax advantage!

Additional HSA fun facts:

HSAs can pay for qualified medical expenses from prior years, provided the HSA was established before incurring the expense.
Even if you are no longer eligible to fund the account, HSAs funds can be invested or taken out to be used for qualified medical expenses.

Growing Your Health Savings Account

Beyond investing to grow your account, you are allowed to add a portion to the account each year to give it a little boost! You can decide how much you want to contribute to your Health Savings Account, up to the contribution limit.

There are regulated maximums that you cannot exceed, but for 2020, for example, the limit is $3,550 for individuals and $7,100 for families, plus an additional $1,000 “catch-up” contribution for anyone age 55 or older by the end of the tax year.

The good news is, contributions can come from multiple different people: you, your employer, a relative or anyone else who wants to add to your account is able to do so as long as they are an eligible individual.

It is important to stay up to date with recordkeeping. As the account holder, you need to keep receipts in order to prove that your withdrawals were used for qualified health expenses, if ever audited by the IRS. But, other than the minor receipt log, taking tax free distributions are simple.

For some custodians, you obtain a debit card or checks linked to your account, and at others custodians, like Quest, you simply need to just call and the money is distributed to you for the qualifying expense without needing to submit the receipts.

What IS a Qualified Medical Expense?

The term “qualified medical expense” is actually broad, and in most cases you will find that what you need for your health, is most likely considered qualified. These can include anything from deductibles, copays and coinsurance, plus other qualified medical expenses not covered by your plan like medical supplies, over the counter medicines, and a wide range of medical, dental and mental health services.

It is important to note that insurance premiums usually cannot be paid for with HSA withdrawals. The key takeaway here is that many expenses qualify and if you would ever like to see the eligible expenses, they are defined in IRS Publication 502, Medical and Dental Expenses.

If you ever have any questions about the HSA or if something may or may not be a qualified health expense, feel free to call our office at 855-FUN-IRAS and we can provide all the information you need to decide if the Health Savings Account is right for you!

Final Takeaway – COVID UPDATES regarding the HSA:

High Deductible Health Plans can cover Coronavirus costs. The Internal Revenue Service advised that high-deductible health plans (HDHPs) can pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their status. This also means that an individual with a high deductible health plan that covers these costs may continue to contribute to a Health Savings Account (HSA).

To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Should You Invest Your HSA Funds?

Posted on March 2, 2020December 23, 2020 by Quest Trust Company

Estimated reading time: 2 minutes

Image Credit: Epic Top 10 Site

Health Savings Accounts are perceived to be among the most tax-advantaged financial instruments. HSA helps people with high-deductible medical plans and controls medical costs.

Unfortunately, most people are not aware that they can invest their HSA funds.

Like any other investment, investing in your HSA will help grow your money and boost your savings in the long run. Besides, HSAs are super-advantageous in terms of tax benefits because your money grows under tax-free conditions.

HSA investment

Investing in HSA means placing your funds in the form of bonds, stocks, mutual funds, etc. rather than letting the money sit to earn interest. These forms of investment allow for higher returns and are reliable long-term savings.

You can invest any amount you choose, though there is a minimum limit. This limit depends on the HSA provider and has to be met before investing.

Prioritizing your investment

Like every other financial adviser in the market, we would recommend paying for medical expenses from your pocket. Then, focus your HSA money as an investment. The HSA investment should be somehow similar to your IRA or 401k assets. Consider the investment to be an extension of other retirement savings you have and treat it as so.

A good strategy would be hoarding your medical receipts for when you get paid in cash. These receipts will be helpful should you need to reimburse yourself when in need of the HSA funds.

Should you invest your HSA Funds?

If you are financially stable, investing your HSA funds should be a consideration. It is an investment that works best if one doesn’t depend on the funds to cover medical costs. For instance, if you are healthy and rarely visit the doctor.

Also, it is a good option for anyone who has the available cash flow to pay any medical expenses. However, if you live paycheck to paycheck or have a terminal condition that requires frequent visits to the doctor, HSA investment might not be the best option for you.

Conclusion

Turning your HSA funds into an investment is a smart and reliable move for most people. Before investing, ensure you are in a position to cater to your medical expenses without withdrawing from your funds. Contact Quest Trust Company today to open an HSA account.

Five Tips for Health Savings Account (HSA) Holders

Posted on September 14, 2017December 23, 2020 by Juan Deshon

Estimated reading time: 3 minutesRetirement comes with many perks including a health saving account (HSA). An HSA is a savings account that may be used to offset medical expenses. One of the best things about health savings accounts is the fact that they are tax deductible. Here are five ways to make the most of your account.

1. Invest your HSA earnings

You have full liberality to invest your HSA in the same manner that you distribute funds in your 401(K). Many people choose to make their health accounts grow by putting money towards stocks and mutual funds. Some jump on the precious metals boat and coast into more money by investing small amounts in gold and silver. Just as with a 401(K) or other IRA, you should be mindful of where additional funds are going. You do not want to invest a large percentage of your HSA in a company that goes bankrupt months after your purchase stocks.

2. Take full advantage of qualified expenses

You can withdraw funds from your savings account to cover tax-deferred contributions and tax-free distributions. All of the fund removals, however, must be applied to qualified medical expenses (QMEs). You can potentially save thousands in out-of-pocket expenses related to health and wellness using your HSA as long as you keep the receipts.

3. Use distributions wisely

While an HSA potentially covers every expense related to health and wellness, you may not want to use your plan for small costs. Paying for recurring things such as prescriptions and annual doctor’s visits out-of-pocket gives your savings account the chance to build value, which may be used for emergencies when large payouts are necessary. You should use the distribution incentive sparingly when it comes to small expenses that you can technically afford to pay.

4. Utilize maximum contributions

Contributing the maximum amount to your HSA comes with incredible tax benefits. Your plan’s earning potential increases when you give the maximum dollar amount to your plan. You, then, have the right to deduct up to the full contribution amount from your tax bill, which means that you are not losing money when paying more into your HSA.

5. Study to be a better consumer

You should not choose the first HSA plan offered but rather compare several possibilities before making a decision. Reviewing your health habits is the first step to understanding what you need from an HSA plan. You may not need an account that offers the bells and whistles if you are someone who visits the doctor once a year. You may, however, require a premium plan if you have a preexisting condition that calls for several checkups and treatments throughout the year.

Implementing healthy lifestyle habits is the greatest way to get the most out of your HSA plan. The more that you consume wholesome foods and keep a good workout regimen, the less often you may have to see the doctor. An HSA plan has the potential to be a financial lifesaver during the retirement years if you work the system well.

Health Savings Account: Building Wealth Through Health

Posted on January 31, 2012April 12, 2021 by questadmin

Estimated reading time: 3 minutesBy now you have probably heard of the Health Savings Account (HSA). What you may not know is just how amazing this type of account actually is, in terms of premium savings, tax savings, and, most importantly, what you can invest in with your HSA.

Qualification Requirements. In order to have a Health Savings Account, you must be an “eligible individual.” To be an eligible individual, you must 1) have a High Deductible Health Plan (HDHP); 2) have no other health coverage, with certain exceptions; 3) not be enrolled in Medicare; and 4) not be claimed as a dependent on another person’s tax return. More complete information of the requirements may be found in IRS Publication 969, which is freely available at www.irs.gov.

Tax Savings. One of the best features of an HSA is the tax savings for contributing to the account. Beginning in 2007, the contribution limit was no longer tied to the deductible. The contribution limit for 2021 is $3,600 for self-only coverage and $7,200 for family coverage. To the extent you make the contribution (as opposed to your employer), these amounts are fully tax deductible, no matter what your income level. If you are age 55 or older, you may contribute an additional $1,000 for 2021. There is even a one time ability to take a distribution from your IRA to fund your HSA with no taxes or penalty.

In my tax bracket, the ability to deduct my contributions is significant. For example, I contributed $6,150 for 2011 and will save approximately $2,030 on my taxes. If you add the premium savings over a traditional health plan to the tax savings from contributing to an HSA, the total benefit to me goes a long way towards covering the cost of my contribution.

Distributions from an HSA for “qualified medical expenses”, which are broadly defined and include expenses for yourself, your spouse and your dependents, are tax free forever! Because the expenses only have to occur after the HSA has been established, virtually everyone will end up with qualified medical expenses at some point in their life. You can take a qualified distribution at any point after the expense is incurred, even in later years, provided you keep track of the expenses.

Investment Opportunities. Even better than the tax savings is the ability to invest your HSA funds in non-traditional investments, just as you would in a self-directed IRA. Many banks and other companies offer the convenience of an HSA account with a debit card for you to pay medical bills with. However, if you are healthy and don’t have a lot of expenses or you can fund the expenses out of pocket, you can make your HSA account grow much faster with investments other than mutual funds or savings accounts which may pay very little.

With a self-directed HSA, you choose your HSA’s investments. Common investment choices made by self-directed HSA participants at Quest Trust Company Inc. in Houston,Texas include real estate, both domestic and foreign, options, secured and unsecured notes, including first and second liens against real estate, C corporation stock, limited liability companies, limited partnerships, trusts and much more. In my own HSA I have a portion of two hard money loans generating yields of 12%, a portion of a shared appreciation mortgage which generates 10% in addition to a share of profits when the property is eventually sold, and a membership interest in an LLC owning a debt-fee rental unit.

The Health Savings Account is truly the best of all worlds. It can significantly reduce your health care premiums, reduce your taxes, and produce tax free wealth through non-traditional investments in a self-directed HSA. With a self-directed HSA (or IRA), you don’t have to “think outside the box” when it comes to your HSA’s investments. You just have to realize that the investment box is much larger than you think!

Health Savings Account: The Best of Both Worlds by Nathan Long

Posted on January 31, 2012April 12, 2021 by questadmin

Estimated reading time: 5 minutesBy now most people have heard of using self-directed IRAs to make purchases other than stocks, bonds, and mutual funds. Companies like Quest Trust Company Inc., operating out of Houston and Dallas, Texas as well as Mason, Michigan, have been doing a good job, through a series of free education seminars, of teaching people about using self-directed IRAs to buy real estate, foreclosures, foreign property, invest in notes, deeds of trust, private stock, limited partnerships, LLCs, and other non-traditional assets. In examining some of the other government sponsored savings vehicles available for investing in non-traditional assets I discovered the highly under-utilized Health Savings Account (HSA). Before my recent employment with Quest Trust Company I did not know that you could purchase non-traditional assets with a Health Savings Account (HSA).

A Health Savings Account is a powerful investing tool that many people overlook. Because it is the only account where contributions are tax deductible and qualified distributions are tax free, it is the best of both worlds. Furthermore, the definition of “qualified medical expenses” is fairly broad. IRS Publication 502 has an available list of qualified medical expenses. These include a broad range of medical, dental and vision expenses, but generally do not include the cost of health insurance premiums. You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law (COBRA) as qualified medical expenses for HSAs. If you are age 65 or older, you can treat insurance premiums (other than premiums for a Medicare supplemental policy, such as Medigap) as quailed medical expenses for HSAs.

In order to be an eligible individual and qualify for a Heath Savings Account you must have a High Deductible Health Plan (HDHP), you cannot be enrolled in Medicare, and you cannot be claimed as a dependent on someone else’s tax return. Recent changes in HSA rules allow you to contribute the maximum amount to your HSA even if your deductible is less than that amount. If you are an individual the amount you can contribute for the year 2021 is $3,600 and for a family it is $7,200. In addition, if you are over the age of 55 you are allowed an $1,000 catch up contribution. Unlike other plans you may have heard about, the amount you put into a Health Savings Account is allowed to rollover from year to year and the profits on any investments with the money are tax deferred. When the money is used to pay or reimburse for qualified medical expenses the distributions are tax free.

The knowledge of how to invest with a self-directed Health Savings Account from Quest Trust Company Inc. allowed me to do some amazing investments this year. I have a High Deductible Health Plan (HDHP) for my family. This health plan works well for me. I personally like high deductible insurance policies. My family rarely turns in a claim on most of our insurance policies. Because my family is financially stable, in the event of an accident or major illness paying a few thousand dollars would not be a problem. Over the years I have saved a lot of money by using high deductible insurance policies. When I discovered that Quest Trust Company offered self-directed Health Savings Accounts I saw a great opportunity.

This year my wife needed extensive dental procedures. The cost went well over $5,650. The insurance company did not pay because it was a dental procedure and I don’t carry any dental insurance. I opened an HSA with Quest Trust Company Inc. with a maximum deposit of $5,650. I could have immediately taken a distribution for my wife’s dental expenses, effectively negotiating a discount on the dental bill equal to my marginal tax rate. Instead I chose to leave the money in the HSA and invest the money in partnership with my son’s Roth IRA and my wife’s Roth IRA to purchase a note secured by a first lien on real estate. The note was for 12% with a 2% origination fee and all costs were paid by the borrower, including Quest’s fees, with an 18 month balloon.

I can add more to the HSA in January of 2022. As the money grows I can take any amount of money out of the account as long as I have qualified medical expenses, including dental or vision expenses, to be reimbursed. Since I already have a large amount of dental bills I just keep these bills along with any others in a file. When I want to withdraw some money for any reason I just request a reimbursement for the expenses regardless of the year the expenses were incurred, as long as the expense was incurred after opening my HSA. That being said, don’t make the same mistake I made. I opened my HDHP at the first of the year but waited to fund my Quest HSA until I could fund it fully. My wife had some of the dental work done before I opened the HSA. The work done before the HSA was opened will not qualify for a tax free reimbursement. If I would have simply opened the account with a small amount then funded the rest later in the year I could have used those expenses as well.

If in the future we decide that a HDHP is not good for our family we can switch to another plan. We will not be able to continue to contribute to the HSA, but we can keep the HSA open and withdraw the money out as needed tax free for qualified medical expenses.

If I had just paid for the dental expenses out of my pocket like I originally planned to, I would have lost the opportunity for a $5,650 deduction on my taxes and the opportunity to make a great investment. Remember, I can take the money out as my investments mature and gains on the investments can be withdrawn tax free. Like we always say here at Quest Trust Company, Inc., “You don’t have to think outside the box, just realize the box is bigger than you think!”

Happy Investing!