Learn how to take advantage of health savings accounts for a great railroad retirement.
Welcome everyone to the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors and today we're going to talk about a health savings account. Hence the title of prescription for railroad retirement. Really valuable that's not really utilized. I don't know why they're just great vehicles for retirement. So I'm just going to go through them, give you some ideas and really think about this for your retirement planning. So what are they?
They're tax sheltered savings accounts, okay. So what does that mean? It means they come right off your taxes, right? If you contribute say $8,000 you're over 55, and you make a $100,000, now you make $92,000 as far as the IRS. So their tax sheltered savings account when they grow their tax-free and when you take out they're tax free, but you must have a high deductible health care plan, right?
So you got to have that. So you have to have that to get that right. All right. So why do you have it, right? I just mentioned the contribution is tax deductible, right? Comes off the taxes. It's fantastic, right? The growth, as it grows, it's tax-free, right? And then the withdrawals are tax free. That's triple tax free.
No other vehicle gives you a triple tax free, right? 401ks are tax deferred, right? IRAs are tax deferred. Roth IRAs, you got to pay the tax upfront, then it gets tax-free. So only HSAs are triple tax free.
So, wait, so how can I use this for retirement? Well, here's the strategy, right? Think of it as a long-term investment. Don't even think about it from a healthcare perspective, okay? Think of it as a long-term investment. You pay your medical expenses out of pocket, just like you're probably normally doing now, right? You pay your doctor's copay out of your pocket, your prescription out of your pocket, all that, right? But you can take that, you save those receipts. You can take that reverse reimbursement at any time.
So you can have these expenses, maybe a $1,000 a year or $2,000 a year. Let's just say it's $2,000 a year. Then 10 years later withdraw $20,000, right? Because you need it for a down payment on an RV or a boat or something. And that will all be tax-free because it's just reimbursing the medical expenses that you paid. So you don't need to just reimburse it that one year, you can carry that over for 10, 15, 20 years. So, very important here. If you want to do this strategy, save your receipts and invoices, right?
You never know. IRS might want to knock on your door and say, prove it when you take out that big lump sum for medical expenses that were the last 15, 20 years. So save those receipts and invoices, maybe put them up on a Google Drive, hard copies, in the cloud, all that. And if you don't, right, and they challenge you and you take out that big HSA, you're going to have to pay tax on it, all right? And not to mention, not only the income tax, ordinary income tax, but a 20% penalty on top of that. So very important to save those receipts. So in 2020, for this year, right, we're coming up towards the end of the year. Couples can do up to $7,100 a year into their health savings account, right? And then if you're over 55, another $1,000. They call it a catch-up. So that's $8,100 a year you can put away tax free, tax deferred and withdrawal tax.
So it's a good strategy. It's right behind, in my opinion, always maxing out your 401k because the companies are matching. But after that, I'm going to the HSA next. All right. It's a great, it's a great vehicle. So hope you found this video helpful reach out to me. If you want to discuss the strategy to that free boarding for railroad retirement assessment, for those looking to plan for the retirement, looking for some help, I'm here to help you out. Reach out to me, schedule that. In the meantime, subscribe to my YouTube channel. Looking forward to grow a little bit more, a lot of new things coming up in 2021. Looking forward to that. In the meantime, everyone, please stay safe, stay on track, and take care. So long everybody. Bye.
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