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Value...it's more than just your 'account balance'

Many individuals determine the "value" they are receiving based on their account balance. While return is important when it comes to our business, we explore lesser-known areas to provide additional value in your financial house. At the end of the day, it is not how much you make but rather how much you keep.


Many individuals determine the "value" they are receiving based on their account balance. While return is important when it comes to our business, we explore lesser-known areas to provide additional value in your financial house. At the end of the day, it is not how much you make but rather how much you keep.

FIVE THINGS YOU SHOULD KNOW

  1. Equity Markets – finished the week mixed with US Markets (SPY) down 0.90%, while international markets (EAFE) rose 0.15%.
  2. Fixed Income Markets – both struggled with rising rates with high-quality bonds (AGG) down 0.26% and high-yield bonds down 0.44%.
  3. The Fight for Equities’ Attention – the stock market rebounded to pare earlier losses as equities are caught in a tug of war between optimism due to rising global growth expectations and concerns over rising bond yields. According to the United Nations Conference on Trade and Development global gross domestic product is projected to rise 4.7%, with Europe projected at 4% and the US at 4.5%, but of continual concern are spiking bond yields that could dampen growth either from increased lending costs or earlier than expected Fed action.
  4. Fed Still on Hold – regarding the prior point, according to Chairman Powell’s comments this week the recent spike in economic growth and inflation has not changed his plans. He “re-emphasized his communications from recent months: the FOMC is not thinking about tapering, raising rates, or doing anything else to change policy … 3 members now see hikes in 2022, and 5 members see at least 5 hikes by the end of 2023.” (Bespoke)
  5. Key Insight – [Video] Many individuals determine the "value" they are receiving based on their account balance. While return is important when it comes to our business, we explore lesser-known areas to provide additional value in your financial house. At the end of the day, it is not how much you make but rather how much you keep. [Written] Health Savings Accounts (HSA's) are often an unfamiliar area of financial planning that can bring several advantages to those that make use of them. We dig more into HSA's in this week's written commentary below.

    INSIGHTS for INVESTORS – by Ben Klundt

    Because health care is only getting cheaper… oh wait, that doesn’t sound right… Let’s talk about an HSA (Health Savings Account)

    What we love as Financial Advisors is a good loophole that allows us to get outside the box and get creative in financial planning for our clients. It’s where we get to flex our muscles and demonstrate additional value. While there are many different ways we strive to bring you to value, above and beyond investment management, one I want to highlight today is a Health Savings Account (HSA.)

    An HSA is an account that you can contribute to during your working years for you and your family and use for qualified medical expenses at any time, and potentially retirement when over age 65, with contributions being tax-deductible and growth, tax-free or tax-deferred depending on how you use it. I think it’s especially important that I reiterate, it can be used for RETIREMENT (A new boat, vacation, living!) after the age of 65 without penalty, but you will have to pay tax. HSAs are NOT just for use on a health expense though that is the intent. It’s a nice tool for folks that can take advantage of it.

    Who can contribute to an HSA?

    Anyone that is enrolled in a “high deductible” health insurance plan is eligible to open an HSA. The IRS defines a HDHP as any plan with a deductible of $1,400 or more for an individual or $2,800 or more for a family. In addition, these plans have maximum out-of-pocket expenses of $7,000 for an individual and $14,000 for families. Some other qualifications are that you can’t be enrolled in Medicare or a dependent on someone else’s tax return.

    Tax benefits?

    This may be the best combination of words around… “tax benefits.” Who doesn’t love saving money on taxes? If you’re eligible to use an HSA the annual limit on deductible contributions is $3,600 for individuals with self-only coverage under a HDHP and $7,200 for family coverage. So any dollar you put in the HSA lowers your taxable income by the contribution amount and there is no income phase out like an IRA.

    Use it or lose it?

    Don’t confuse an HSA with a FLEX spending account. FLEX needs to be used by year end but an HSA can grow tax deferred for years, getting the benefit of compounding interest, just like your retirement accounts.

    What is a “Qualified Medical Expense?

    Any expense that is necessary for medical care, kind of vague. The reality is that these are the same costs that would be tax deductible on your 1040 most of the time. An interesting opportunity for those that have the income to do so is that if you have medical expenses that are high enough to write off on your 1040, you could get the benefit of writing those off in the year in which you incur them but also make a contribution to an HSA and get the benefit of the write off for that year as well, double dipping if you will.

    What if I don’t have enough “qualified medical expenses?”

    The account grows tax deferred and distributions are tax free as long as used on medical costs (similar to a 529 college savings account actually, except contributions aren’t tax deductible in a 529). If you don’t have the medical costs and would like to take money out to buy a boat, when you are over the age of 65 you can take distributions from the account and pay ordinary income tax on it having realized the benefit of years of tax deferred growth (similar to a Traditional IRA.)

    So is this a cash account or investment account?

    Both. While an HSA does need to be opened and funded through an intermediary, if it is on one of the approved intermediaries we work with (HSA BANK, Sterling HSA, or Lively HSA) then you have the option to open an investment account on TD Ameritade and have your advisor manage it to your risk tolerance and time frame vs having it sit in cash. Distributions and contributions all need to be done through the intermediary but you can now get the benefit of years of growth and advisor management.

    Let’s go through an example:

    John and Jane Smith have two kiddos. Both are employed with health insurance through their employers and those plans qualify as high deductible plans. If the employer doesn’t offer an HSA, John and Jane can go and make a contribution to an HSA for $7,200, lowering their taxable income by this amount. Let’s say that John and Jane contribute one time and then forgot they have an HSA and rediscover their account when they’re retiring except it now has $40,000 in it. They got almost $32,000 of tax deferred growth over 30 years on that initial tax deductible investment. Then they plan to use that $40,000 to pay for their medical costs during retirement getting the additional benefit of not having to pay tax on that $32,000 in gain. If they didn’t use it for medical costs after the age of 65 they can take it out and pay income tax on the amount they withdraw just like a Traditional IRA.

    The HSA for those that can use it is quite a tool and one that can be used to help fund retirement while saving you some tax dollars now. If you have any further questions on HSAs or have an HSA you’d like some help with then please feel free to reach out to your advisor here at Ten Capital. We’re always here to help however we can.

    Happy planning!



    Ben and the team at Ten Capital

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