257 | Back to Basics: Getting Started with FI

• In this ChooseFI Back to Basics episode, we review Health Savings Accounts (HSA). What happens when you need to finally pull money out after funding it year after year?
• ChooseFI Chief Content Officer, MK, is just weeks away from having her baby. For years, she and her husband, Jason, have been funding separate HSA accounts without making any withdrawals.
• They now contribute to a family plan HSA and decided it was a good time to test out how complicated the process was to withdraw HSA funds.
• They discovered some plans are easier than others. The process of withdrawing funds from the fund MK had rolled over to Fidelity was super easy. Jason's was a bit more tricky due to the Health Insurance Portability Accountability Act (HIPPA) compliance laws and auto-reinvest settings. Now that they tested it out, they feel confident they will know what to do in the future.
• An HSA is a type of investment vehicle that gives you a tax deduction in the current year and helps pay for healthcare-related expenses.
• Only those participating in qualified in high-deductible healthcare plans are eligible for HSAs. For 2020, the IRS defines a high-deductible plan as one with a deductible of $1,400 for an individual, or $2,800 for a family. the maximum a family may contribute in 2020 is $7,100, and half of that for an individual.
• The money going into the account isn't subject to income tax and sits in the HSA account until you submit for reimbursement of healthcare expenses. HSA withdrawals for healthcare expenses are also tax-free.The benefit of an HSA is that the money can build and grow over time. Healthcare expenses do not need to be submitted for reimbursement as they are incurred. HSA participants can pay out-of-pocket and wait for years before requesting reimbursement if they choose to.
• The IRS criteria dos state that the high-deductible plan must be a qualified plan. Check with your company's human resources department to determine if your plan is a qualified one.
• HSA participants should also understand who their plan is with, what investment options they have, and what the fees are. Based on fees, Fidelity and Lively are two good providers who offer low-cost, board-based investment fund options.
• The goal is to cash flow medical expenses in your younger years when they are generally lower, funding the HSA with pre-tax dollars and allow them to grow until later in life when healthcare costs begin to increase.
• There may be additional tax benefits from using your employer's HSA provider rather than Fidelity or Lively.
• Because you can submit for reimbursement years after the expense was incurred, save your receipts. Brad has a Google doc that lists all of the healthcare expenses he pays out-of-pocket and saves a pdf of the receipt in his Google Drive account.
• Even if your provider offers a way to upload receipts, you should always maintain your own records and only use the provider's system as a secondary backup. If you change HSA, you could lose your receipts.
• It is your responsibility to verify to the IRS that you've been using the funds in the HSA appropriately. It makes it easier if you have all of that information maintained in your own cloud-based account.
• After several years or decades of cash-flowing healthcare, it may be possible to have tens of thousands of dollars of reimbursable expenses that are accessible anytime, tax, and penalty-free whenever it is needed.
• The final episode in round one of the Households of FI series airs next week. Throughout this series, ChooseFI follows eight diverse households at different points on their path to FI.
• More exciting news for ChooseFi is the website redesign, expected to launch in the coming weeks. The new website format was designed with your experience and journey to financial independence in mind. The content on the site has been curated so that people looking for specific content can easily find what they are looking for.
• If you would like to receive a notification when the new website has been launched, go to ChooseFI.com/subscribe and an email will be sent to you when it's ready.
• Brad recently gave a presentation to Dominick Quartuccio's Do Inner Work mastermind group on the Why of FI. Though people seemed to understand the why of FI, there were questions regarding how to get to FI.
• How does someone go about getting started? It starts with visualizing where you want to be in 10-15 years, what your goals, and what kind of options you'd like to have.
• If Brad were to go back to when he began his journey, he would have said that there's got to be more to life than what he's experiencing. Life was comfortable, but it felt like Groundhog Day. He could see himself doing it for the rest of his life.
• The second task when starting on the path to FI is to take an assessment of what your life actually costs. What you earn minus what you spend, equals the gap, or the amount of money you have left to work with.
• Adding up your structural expenses, recurring monthly bills, unplanned expenses, and then looking at all the little discretionary expenses can be a difficult task. No one should beat themselves up over it.
• Once added all together, you have a realistic estimate of what your life actually costs. It's not complicated math.
• ChooseFI Episode 258 airing on Monday will tackle the other side of the equation, the gap, and discover how to affect the outcome.
• It's the first anniversary of the release of ChooseFI's book! To celebrate, we're giving away the first chapter for free when you go to ChooseFI.com/book.
• The weekly book giveaways are back! Winners will be selected from response to Brad's newsletter call for FI wins. This week's winner is Belinda. After tracking her spending for three months, she made a budget and reduced her family's food budget by $900 a month. She's also funding her Vanguard account $500 a month, refinanced her car loan, her husband maxed out his 401K, and she hopes to max out her SEP IRA. She says having control of their money is giving them power back over their lives.

RESOURCES MENTIONED IN TODAY'S CONVERSATION

• Protect your online activity with ExpressVPN and get an extra 3 months free.
• Find your own unique path to FI with NewRetirement.
• Get notified when the new ChooseFI website launches!
• Dominick Quartuccio's Do Inner Work mastermind group
• ChooseFI Episode 038 The Why of FI
• ChooseFI Episode 100 Welcome to the FI Community
• Get the first Chapter of ChooseFI: Your Blueprint For Financial Independence for free!

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