Vehicle For The Future : Saturna Health Savings Accounts
Download a PDF:
Vehicle For The Future: Saturna Health Savings Accounts
OWAIZ DADABHOY: Alright. It is noon time, and we thank you all for joining us this afternoon. We have some great guests with us. We’ll officially get started in a second but as we know, people typically will join a couple of minutes late and what not. So, what we’re going to do first is give you a top ten list of financial mistakes people make. The most common ones. And the first one is excessive and frivolous spending. So, it could be that you’re buying things on a monthly basis or every few months that, you know, it’s a large expenditure, or it could be the small ones that add up, right? Young people often times, they learn a little bit too late that if they just saved their money on coffee on a regular basis, on something else rather than coffee, every single day, they would have some extra money at the end of the year. Right? For the real purchases they want to make. And then, you know, the thought comes back to that Mark Twain saying where we often buy things we don’t need with money we don’t have to impress people we don’t even like. Right? I love that saying because it’s so true. And even if you do impress someone, how long are they impressed, right? Before they become jealous and then who knows what they’re going to do after that. So, the number two is never-ending payments. You get into a car loan for a car that’s over your budget and you got like a long-term loan on that. Like, seven years or you go out there and you buy a house and it’s going to be for 30 years, and you don’t figure out that you could make extra payments and try to reduce that. And I have seen people that are 70 plus refinance their home. Right? So, does that mean that they are going to finally pay off their home at 100? Maybe, right? Unless they have a plan. They live off borrowed money. That’s a mistake that’s commonly out there, as well. So, they don’t have enough money coming in so, you know, they’re living off credit cards and lines of credit and what not. Number four is buying a new car. I mean, everyone needs to buy a car, but the point on this one is... are you buying a car that is above what you can really afford? Or what you, you know... are you prioritizing your car over something else? So, keep that one in mind when you’re thinking about what kind of ride that you need. Spending too much on your house. The example that I’m reading here on this website is that you’re buying a 6,000 square foot home for a family of three. Might not be needed, right? If you’ve got the money, that’s fine, but what if you can only afford a home that is 2,000 square feet but you’re buying that 6,000 square foot house, which is way above what you’re making. But the bank somehow is going to give you financing on that. Number six is using a home equity line like a piggy bank. I mentioned that one earlier. You’re borrowing money, again, to buy things that maybe you shouldn’t be buying because you can’t afford it, so you’re putting it for the long term. Right? You’re using interest and you’re using lines of credit or personal loans to do that. But at some point, you’re going to have to pay that back. And when you pay it back, it’s going to cost you a lot more. If you bought something for $5,000, it might cost you $10,000 by the time you get done with the payments. Living paycheck to paycheck is number seven. You know, in June of 2021 the US household personal savings rate was 9.4%. So, what that means is many people, like the majority of the people that you know, are living paycheck to paycheck. Either you have to increase your income or lower your cost to be able to manage your budget and try to get to that point where, you know, if you missed one paycheck, you could survive. And then, I could miss two paychecks and I could survive. Maybe your goal is then, I could miss six paychecks and still have enough money to run my life or not have any debt in the first place or overwhelming fixed costs. Right? Things that are there every single month that we have built up. Number eight is not investing in your own retirement because we know that social security income is not enough. I won’t give up the number here. I believe Rachel is going to talk—Rachel or Matt—is going to talk about that, about how much social security will actually give you as the average person in the United States. There are 40 million people receiving social security. What is the average amount that they receive? So, if you don’t have a pension, you don’t have enough social security income, you’re going to have to have your own savings for retirement to have a decent or, you know, halfway decent even, retirement life. Number nine says paying off debt with savings. This one I could go either way on, right? It really depends on what kind of debt you have and how much savings you have. The point here, I think, would take too long to explain but one of the causes or one of the reasons they mention that they think this is a problem is if you’re doing it from your retirement account because you’ve put in money that hasn’t been taxed and then you’re pulling it out and you’re going to have to pay it back at some point. Right? So, let’s say you have $50,000 worth of debt and you have enough in your 401(k) to pay off that $50,000 worth of debt. So, you take a loan on it. So, you’re going to pay yourself back in your 401(k), but you are going to have to fully pay off that $50,000. I know a couple of people that have come to me. They left their employer after taking a 401(k) loan and their loan was due within 90 days because once you leave your employer you have to pay that back. So, be careful about raiding the 401(k). Not having a plan is number ten. I would probably put that as the #1 issue. This particular website I was looking up, it says, you know, you can spend hours watching TV and Netflix and whatever else you’re watching and spending time doing things, but you can’t spend two hours a week on your finances? Right? That’s what this says. And I was thinking to myself, “What about two hours a month?” Does the average person give that much time? What about two hours a year? Do people actually consider, like sit down and say, “What is my financial plan?” Right? So, that’s the top ten list. Hopefully most of you that wanted to join today that are RSVP’d are here now. So, we will officially start. Again, thank you. This particular presentation is about Health Savings Accounts and there are so many benefits of Health Savings Accounts—that’s why we wanted to talk to you about them—so welcome to the presentation today. We have two of our team members from Saturna here with us, as well. We’re happy to have them because they have a lot of experience in customer service and in other things as well. We have Matt Ward, who has been with Saturna Capital for 20 years. He is the distribution and client broker relationship manager. And so, what he does is he speaks to not only clients, but he speaks with other companies that you can go buy your funds at. Right? So, for example, if you want to buy Amana Funds within your 401(k) at another company, you can do that because Matt has signed up that agreement. And so, we’re happy to have him here. Because he’s been with us for 20 years, he has talked to many, many customers and has often times dealt with the stickier types of messages or situations that customers are in and he’s helped to solve those as well. In the beginning, you know, when I first joined in 2008, I used to go to him for questions and eventually I started going to him for the HSA because he was there at the start when we first started to offer the Health Savings Account. Rachel Gottlieb is with us, and she is the manager of the Retail Investor Services team. So, her team is the group that will answer your questions when you call in, right? So, if you call in to Saturna, it doesn’t go to some other country to some customer service company that we have hired. We actually hire the folks ourselves, they are in our main office in Bellingham, Washington, where Rachel is, and Rachel’s team is well-versed on not only Health Savings Accounts but all of the different types of accounts that you may need. So, we’ll have both of them speak here today. Often times, we have tax advantages that are out there for us but we just overlook them and so, what we want you to do as our customers or potential customers is whenever you have a financial goal, try to figure out an account type that the government allows that will allow you to have a tax benefit. If I asked all of you on the call here today, “How many of you are concerned about health insurance costs and, you know, dental costs for your children, maybe vision for one of your children or maybe for yourself?” Probably 50% or maybe even all of you might raise your hand say, “That’s a concern,” either now or it’s a concern in the future. Part of the presentation today is going to talk to you about what are going to be your future costs of insurance when you retire? Right? And so, how can you use the Health Savings Account to save for retirement time, as well? Last thing before we go into the presentation here is you’ve probably heard of FSA and there’s FSA and then there’s HSA, right? The FSA is a Flexible Spending Account, and the HSA is the Health Savings Account. In some ways, the HSA is more flexible than the Flexible Spending Account. And we will get into why that is but you probably know the FSA is the “use it or lose it” account where you put in, you know, $50 a payroll. At the end of the year, you have $1,200 in this account. The Flexible Spending Account. You didn’t pay tax on that money, that $1,200. So, the agreement you have with the government on this and with your employer is that you are going to use all of that money for health-related costs, and you just provide the receipts, right? So, if you do that, you’re going to spend the money. Whether you need to or not, you’re trying to spend that money. Whereas in the Health Savings Account, you don’t need to spend it that year, and so there are some benefits here that you may not have thought about. Some of what we will talk about today will include... perhaps we’ll get into something about the Funds and if we do, then just understand the risks, objectives, charges, and expenses need to be carefully reviewed by you and nothing that we are talking about on the investment side, if we get there, will be any kind of guarantee, right? So, if we mention an average return of 7% or 8%, that doesn’t mean we are guaranteeing a return. We’re just telling you what an assumption might be or what past performance might be. Good news that we wanted to share: you probably don’t know this but we get to see this news and we rejoice in it, if you want to say it that way. So, Investor’s Business Daily has been publishing the list of Best HSA Providers and for the third year in a row, Saturna Capital was named as one of the top. So, we are happy about that. You’re going to see why we are ranked in the top for HSAs and we’re glad that we’ve been able to accomplish what we need to be able to make this list. So, I’m going to pass it over to Rachel now, who will get us started with the Health Savings Account preliminary information.
RACHEL GOTTLIEB: Thank you, Owaiz, and thank you for having me. So, we’re going to just jump into what is a Health Savings Account? And I want to start with a statistic that I found very interesting. According to the 2020 year-end HSA market statistics and trends, there are more than 30 million HSAs and that’s covering 63 million people and holding over 80 billion in funds. So, what’s the buzz? What is this HSA account that is growing every year, year-over-year? So, we’re going to start with HSA: that’s short for Health Savings Account. And when we think of that, we think, “Okay, it’s an account where I pay health-related needs out of,” but it’s much more than that. It’s an account that, yes, let’s you pay for those qualified medical needs with tax-free dollars. It can reduce your annual taxable income with pre-tax contributions. It also allows you to save for your future health care expenses while generating tax-free earnings. And all of that said, it’s providing you peace of mind when you retire. Now, we’re going to talk about that. An HSA is also yours. You own it. So, the money is yours until you spend it. Even contributions made by other people, such as employers, all of that money that’s in your HSA is yours. Owaiz briefly touched on the “lose it or use it.” If you don’t use this, you do not lose it. Your HSA is yours for life. So, again, there is no “use it or lose it” rule. The balance rolls over year-over-year and with careful balancing and savings you have the opportunity to grow your account over time. An HSA also offers tax savings. And we’re going to talk about this later on, but HSAs do provide what’s called a triple tax benefit. We’ll address that later on. So, when we think about the HSAs and we think about medical expenses, it’s not just an account for doctor visits. An HSA, once you’ve contributed to it, you can use those funds in your HSA to pay for qualified medical expenses such as dental visit, vision care, prescription medications, and more. And again, we’re going to dive into that as well. An HSA account also helps you save money on the high cost of health insurance, and we will dive into that a little bit later on. We’re also going to talk to you about how an HSA account can help you with your financial goals in retirement. So, you can tell that an HSA, Health Savings Account, is not just an HSA. It’s actually a nest egg. You cannot simply set aside an HSA in a shoe box or a safety deposit box. You have to have an account that’s specifically designed to hold a Health Savings Account. So, we’re on this screen now on eligibility—excuse me guys—client eligibility. So, because there are significant tax advantages, the IRS has specific guidelines to determine who is eligible to open and contribute to an HSA. So, once you’re eligible to open an HSA, like I said earlier, because it remains yours, even if you no longer have what it called a high deductible health plan, which is one of the requirements, you can still keep this account. Eligibility is only required to make the contributions to the accounts. I want to make sure we point that out. Let’s talk about how to become an eligible individual. In order to qualify for a Health Savings Account, you need to have what we just talked about: a qualifying high deductible health plan. And that plan has to meet the IRS guidelines for the annual deductible and out of pocket maximum. We’re going to discuss high deductible health plans in just a second but on this slide, let’s go ahead and address the turning 65 and Medicare. All contributions have to stop once you enroll in Medicare. But I do want to point out that once enrolled in Medicare, though you can’t contribute to an HSA, you can still continue to invest the money in your HSA and take distributions for qualified medical expenses. Another point to make on this slide is that when it comes to turning 65, if you delay your enrollment in Medicare, you can still make contributions past the age of 65, including catch ups. And again, I know I keep saying we’ll talk about this later on, but we will. We’ll talk about catch up contributions in a minute. Last but not least, I do want to mention that there are no income limits to eligible to contribute to an HSA. And HSAs can be 100% tax deductible at all income levels. Alright, so we just said to be eligible you have to have a high deductible health plan. So, what are the rules? What is this all about? Well, a high deductible health plan, as you see here HDHP... lots of acronyms we are throwing out today. What is the high deductible health plan and what makes it qualified? So, under tax law, qualified high deductible health plans—HDHPs—they have to set a minimum deductible and maximum on out-of-pocket expenses. For a single person in 2020, the minimum annual deductible was $1,400 on that high deductible health plan and the maximum out of pocket is $7,000. For a family in 2021, the maximum annual deductible is $2,800 and your maximum out of pocket can be $14,000. What’s the minimum deductible? The minimum deductible is the amount you are going to pay for health care items and services before your plan starts to pay. So, what’s the maximum out of pocket? That’s the most you would have to pay if you need more health care items and services. Now, like most plans, an HDHP—high deductible health plan—generally covers 100% of qualified medical expenses once you’ve reached your annual out of pocket maximum. And that’s how you are protected from large and unexpected health care expenses, right? Well, some plans you might hear this being called the stop-loss limit. The out-of-pocket maximum is the upper limit of your financial exposure during a plan year. With some high deductible health plans, the out-of-pocket maximum and deductible, those are going to be about the same. With a high deductible health plan, the amount you pay for in-network deductibles, copayments, work coinsurance, but not health care insurance premiums, are going to be included toward your out-of-pocked maximum. Now, with, you know, exactly what your plan covers, that’s going to depend on a lot of variables: your employer, your health plan, and the different choices you make from among the plans available to you. I do want to call out, while we’re on this slide, that since 2011, Health Savings Accounts, qualified high deductible health plans, are required to pay 100% of standard preventative care services as designed by your health plan. So, if you take advantage of preventative care services, adopt healthy lifestyle habits, you can reduce your medical expenses, potentially increasing your ability to pay for those health care costs in retirement. Alright, we want to go to the next slide. So, we have talked about what an HSA is. It’s more than just a Health Savings Account. We talked about how to become eligible and what this high deductible health plan was. Let’s move on to HSA contribution limits. Because these accounts have a unique tax advantage, your contributions are protected—in most states—from state and federal income taxes, and because of this, the government limits the amount of money you can contribute each year to your HSA. I want to call it: if you do contribute too much, you may pay income tax on that additional amount as well as penalties, okay? So, as long as we stay within the government guidelines, we are good. Each year, the IRS does set those contribution limits for the next year and the limits for the high deductible health plan coverage for individual and family are the most that you can contribute every year. So, let’s talk about what those are. In 2021, $3,600 for a single plan and $7,200 for a family plan. And remember, the single and the family plans, those are going to be based on the deductible from your high deductible health plan that we discussed earlier. So, the max you can contribute, again, $3,600 for a single and $7,200 for a family. With that being said, as an added bonus, there is what is called a catch-up contribution. So, if you’re 55 years old or older, you can contribute an additional $1,000 and you can do this every year as long as you’re eligible for the HSA. But again, as we discussed on that first slide, if you have enrolled in Medicare, you’re no longer permitted to make those contributions. So, what do these catch-up contributions do? Well, if I have a single plan, I’m not capped out at $3,600. I can make that additional thousand dollars allowing me to do a contribution up to $4,600. Who can contribute to an HSA? Anyone can contribute to an HSA on behalf of an eligible Health Savings Account holder. Now, I want to point out that although anyone can contribute to your HSA, it’s only you and your employer that may be able to claim a deduction on your contributions, okay? They may not take a contribution—if you have a family member making a contribution for you—they may not take that tax deduction, but the nice part of that is that their contributions to your HSA do not add to your gross income. So, when we start talking about taxes and different strategies, keep that in mind. So, if you’re contributing, using taxable income, for example if you have an HSA Health Savings Account not associated with your employer’s health plan, your contributions can be included as what is called an above the line deduction. So, when you file your federal income tax, this can reduce your taxable income. Well, what if you’re self-employed? Well, because self-employed individuals... they are not considered employees, they can’t receive employer contributions to their HSA from their businesses, but they can make personal contributions and may be able to claim those on the above the line deduction that we just talked about on the income taxes. IRA transfers. This is going into rollovers and transfers. When we talk about rollover transfers from an existing HSA that you may have to an HSA with a different trustee... those don’t contribute to your annual contribution limit but there is something called a once-per-lifetime trustee to trustee transfer from an IRA. So, to help fund the HSA, an account holder can make a once-per-lifetime trustee to trustee transfer from a traditional or a Roth IRA, to an HSA. I do want to point out that this transfer will count to the annual contribution limits and because of that, the once-per-lifetime IRA to an HSA transfer is limited to the maximum annual contribution for the year. And then, the tax window. You can contribute up to the tax filing deadline for the year. For most people, that’s going to be April 15 of the next year. I do want to say that if you have a tight budget and can’t fully fund your HSA, remember that most plans allow you to make contributions beyond the end of the year. So, until that tax filing deadline. And still receive those tax benefits. Alright. Triple tax advantage. Save those receipts. So, let’s jump into what is a triple tax advantage? Only HSAs provide what is known as the triple tax advantage. What are these three advantages? Well, if you follow the rules, the three tax advantages are: you can make tax deductible contributions, your account can grow and generate earnings free of federal and again—most states—income tax, and your distributions, when used for medical expenses, are also free of taxes. So, let’s talk about these three advantages briefly. Every dollar that you contribute pre-tax to your HSA reduces your annual taxable income. What does that mean to you? What’s the benefit to you? Well, you’re going to keep more of your paycheck with pre-tax contributions. One of the benefits of an HSA is no taxes are withheld from HSA contributions made through payable deductions. So, every dollar that you contribute from your paycheck is going to go directly into your account. That means you could have more money to use on qualified health expenses than if you were to use funds from—let’s say—your checking account. So, with that being said, contributing funds to your HSA on that pre-tax basis not only reduces your income tax liability but it can also reduce other employment-related taxes. So, tax advantage number two. We said tax-free earnings on your money. Your account and your investment earnings grow tax-free. Any earnings on your account are tax-free, which could add up to more dollars to use toward qualified health expenses, to save for retirement. This is just one reason why utilizing the investment features of an HSA could be an important component when we talk about long-term financial planning. And number three, tax-free distributions. Any time health care expenses come up, you pay for it from your HSA, you’re good to go, as long as it’s a qualified medical expense. You’ll never pay taxes or penalties when you use those HSA dollars. So, when you contribute to a tax-advantaged account like a 401(k) or an IRA, you can expect to pay taxes on the money once you begin taking withdrawals, right? But that’s not the case with an HSA. You can make tax-free withdrawals from your account to pay for qualified health expenses and that is tax-free. Alright? We want to move to the next slide. Alright, so why do I want to open one? On this slide, it reiterates the money is yours and if you remember, we talked about the “use it or lose it” and that is not the case with an HSA account. It is your money. But today, a Health Savings Account, HSAs, they provide more tax advantages than any other savings vehicle in the United States. If you don’t have an HSA and you qualify for one, you might be missing out on an opportunity to—as we discussed—reduce tax burden, increase your retirement savings, and really protect yourself against rising medical costs. So, more than it’s just your money. Again, you’ve got to be an eligible individual to open or contribute to an HSA, but you do not have to be covered under the high deductible health plan to keep the account that you opened. You can still accumulate tax-free earnings or take tax-free distributions for qualified medical expenses. You get to keep, grow, and spend all of the money in the account, even if you leave your employer or you lose your HDHP, that was the high deductible health plan. We briefly mentioned saving on the high cost of health insurance by saving on premiums. I just want to touch on that because when it comes to choosing a health care plan, you really have one decision to make. It’s going to be high premium or low premium, and as we discussed earlier, the HSA qualified high deductible health plan offers the lowest premiums. That enables you to unlock immediate savings. The difference could actually be thousands of dollars a year. Health care premiums, I want to get across, they disappear forever. So, you don’t benefit financially because there is not refund of unused premium payments. But you can use your HSA to keep that money instead. So, a higher deductible generally means lower monthly payments as far as your premiums go and while it may seem intimidating to take on a higher deductible, remember that high deductible health plans may actually save you money over time. If you contribute all or some of what you’re saving by paying a lower premium, you put that into your HSA, the balance in your account, in your HSA account, can offset your higher deductible. When you contribute more than what you need for medical expenses in any given year, contributions in your HSA can grow year-over-year. So, in a nutshell, if you choose a low premium health plan, you can put the extra money you would have paid towards a high premium plan into your HSA, and this gives you more flexibility and control when it comes to saving for future health care expenses.
OWAIZ DADABHOY: Rachel, quick question for you. So, some employers... I don’t know if you know the percentage or just generally... many employers do put some money into your HSA savings account when you sign up for an HSA health insurance plan versus a higher end plan. Is that right?
RACHEL GOTTLIEB: Yes, absolutely. So, there are a lot of statistics out there. I was reading last night that companies with less than 500, 75% of employers contribute. And so, why would employers want to do that? Well, HDHPs and HSAs provide a means of controlling soaring health care costs in a way that does not impair employees’ access to quality health care. And besides saving money on overall reductions in premium costs, employers also pay fewer taxes because contributions to their employees’ HSAs are tax-deductible. When a company provides an HSA, they realize a tax savings because their payroll taxes can be reduced.
OWAIZ DADABHOY: Mmhmm.
RACHEL GOTTLIEB: So, they are saving on things as well as the employee, on FICA, federal unemployment tax, state unemployment tax. All of these are taken into consideration when employers are looking at it.
OWAIZ DADABHOY: I believe this is Rachel’s final slide, perhaps, or maybe one more after this. So, must a reminder: if you have questions that are coming up in your mind now, go ahead and put them into the Q&A portion or the chat portion of this webinar and we will address them shortly when we’re finished. Please continue, Rachel.
RACHEL GOTTLIEB: Yeah, like we said earlier, it’s not just for doctor visits. And this is just a small example of what can be considered a qualified allowable expense. There are great publications out there. The IRS offers publications. I think 502 and 969, it talks about qualified medical expenses. This is just some of them so you can see that it’s not just about doctor visits. Alright, next slide. Alright, and then, I’m going to introduce Matt, here. On this slide I just want to say that even with the passage of the Patient Protection and Affordable Act, and changes in Medicare, health care costs are still going to rise significantly, especially in retirement. Industry analysts warn that many retirees are going to fall short of the amount needed to cover the gaps in medical coverage as they age. Matt is going to jump into this and take over. So, without the HSA, I just want to throw out there that many retirees are going to have to pay for their share of medical expenses by taking distributions from their 401(k) and other retirement savings plans. As we know, these distributions are taxable. So, thank you very much.
OWAIZ DADABHOY: Thank you, Rachel. Alright, Matt.
MATT WARD: Hello, everyone. I want to thank everyone for taking the time out of your day to be here today. A number of you, if you’ve been with us at Saturna for a while, we’ve probably spoken or crossed paths, but again I just want to thank you and thank you, Owaiz, for having me today. As Rachel has laid out very well, the HSAs are very much growing in popularity. And also, she laid out well, as one of the primary takeaways I want you to have is that the insurance has to make sense for you, okay? High deductible health plans are fantastic. Rachel has done a great job of spotlighting the benefits that they can have. Even if, maybe you’re a little bit skittish about having that higher deductible. The tax benefits and getting a little bit of a ramp up into an HSA account, once you build up a little bit of savings, can really give you a nice runway. But again, the insurance has to make sense for you, and we just hope to give you that primer just because that’s always first and foremost. I’ve had a number of conversations with clients and prospects over the years that say, “I’m ready to get it going!” I’m like, “That’s great. I want to walk you through every step, but have you figured out the insurance portion?” And they’re like, “No, do I need to...” So just always remember, you just need to have that qualification before you begin to take steps to open up an HSA. The last thing that you want to have happen is to have the IRS knock on your door. You just need to make sure that you’re qualified for the account prior to making any contribution to it. So, Owaiz, if we could hop to the next slide, please. Our marketing group put together a couple of statistics here and one from the Employee Benefits Research Institute and one from Fidelity. Their numbers are slightly different in their estimates, but this is really pointing out something that I think we are all fairly aware of, but it gives you a picture in terms of dollars with respect to estimated health care costs, which everyone knows, just kind of steadily increases over time, or has. The old joke... I’m not sure if this was Mark Twain that Owaiz was referencing earlier but whoever said that two certainties in life are death and taxes. Well, if we stay above ground, medical expenses as well, right? So, these figures aren’t shocking, any one, but we just want to point out just how important it is to save what we can for what will be an inevitable source of spending in the future, and that is on our medical care. As well as social security, and Owaiz touched on it earlier, this is the average number. This is another number that isn’t going to surprise anyone as far as understanding that social security certainly isn’t going to take care of everything for you. And you do need to find a way... we all need to find a way to put into savings what we can for various future goals that we’re going to need to cover from other sources. So, in 2004, Saturna started offering HSAs and I’ll give you a really brief overview on how that came to be. The institutions that were initially putting this product out on their shelves were banks and a number of you probably remember that it was essentially a checking account with a debit card with an HSA label on it. You earned about 1% on the balance, paid that much probably in fees, and swiped your debit card at the doctor’s office. Very transaction oriented. That absolutely is a suitable fit for certain people. We decided that there...and time has shown that our hunch was generally correct... that there is another type of HSA prospect and there are those that want to take advantages of what Rachel was describing earlier with respect to the excellent tax treatment of the account. And that you can offer investment options within these accounts, okay? So, as an investment advisor, Saturna Capital, a number of you know that we have IRA products, different retirement account products, you name it. We’ve got a broad spectrum. We added Health Savings Accounts to our product lineup where someone could come to us, set up their HSA and invest rather than have that checking account style that I referred to initially. So, as many of you know, we offer and advise and distribute the Amana Mutual Funds, which invest consistent with Islamic principles. We also have a number of other mutual funds that advise and distribute as well. We also have a brokerage option, as well. [EDITOR NOTE: As of January 2023, Saturna no longer offers a brokerage option in HSAs.] So, Saturna was... I don’t want to say we were the lead... but we were one of the primary trailblazers that took this approach when these products were available to come to market back in 2004. And we really started to, you know, attract attention of those that were looking to take advantage of the savings and to grow their balance over time. I’ll just say that last bullet point there that you see; we have very low minimums to get started in terms of initial investment. So, I touched on this briefly. We have a number of no-load mutual funds. A number of you know what no-load mutual funds are; it just means there are no commissions when you buy or sell those funds. Okay? But they all vary with investment objectives because everybody has different investment objectives. Some of us want to play it close to the vest. Maybe we have a shorter-term time horizon. Others may want to put their foot on the gas and invest more aggressively. To each their own. And with respect to allocating amongst just the Amana Funds, to invest consistent with Amana principles, I want to give a little plug to a tool we have on our website that’s absolutely fantastic. It’s called the Amana Fund Selector. The Amana Fund Selector. And what it is it’s an education tool that allows individuals to plug in... I’m going to say it's about ten questions or so. It just takes a few minutes to fill out. But you’re essentially answering questions that revolve around your goals, your time horizon, and your risk preferences. And you can plug that in, not just for our HSA, but to put on your HSA cap, your “I’m saving for future medical expenses” cap. That might be different from your long-term retirement savings cap. The point is that you can use that tool, answer those questions, and what it does once you’re done is it gives you, it displays a hypothetical allocation amongst the different Amana Funds that’s based on the feedback that you provided it. So, one might be a very conservative approach to investing. One might be very aggressive. Once you take the steps and go through that exercise, you’ll see what I mean, but I just wanted to give that a quick plug. As I mentioned, investing... there’s a broad spectrum of different investments that you can have which tailor to your risks, returns, and objectives. We also have a self-directed brokerage option [EDITOR NOTE: As of January 2023, Saturna no longer offers a brokerage option in HSAs.], should you decide to purchase individual stocks, money market funds, or unaffiliated mutual funds.
OWAIZ DADABHOY: So, Matt, let’s stop here for a second because you brought up some interesting things about in 2004 when they first came out. You know, many people were using it like the FSA which is... put some money in and then use it all up in that same year. But the other way to do it is to put it into an investment. So, how does that work? So, if someone puts in, let’s say $5,000 per year. They don’t put in the maximum family $7,200 or whatever the number is there. They put in $5,000 a year and their expenses are around $1,000 and they are able to absorb that from their... write checks from their checking account. What are the advantages of doing something like that?
MATT WARD: Yeah. That’s a great question. It’s one of the things that people have figured out either before they come to us or after we’re having a conversation about what the Saturna HSA is and how it’s different. It’s a reimbursement vehicle. So, to stick with your hypothetical, let’s just say an individual puts in $5,000 a year for four years. Let’s keep this really simple and let’s just say that they have like $25,000 in the account. Let’s assume there’s some appreciation there. Over that time, like you said, they’ve gone to the doctor. Let’s say they’ve incurred about $1,000 a year in medical expenses. Okay? Now, earlier you saw Rachel’s reference to “Save those receipts.” Now, that is absolute gold as far as something to keep in mind. You absolutely want to save your receipts if you’re planning to reimburse yourself next week or you’re planning to reimburse yourself in five years. That’s one of the great things about this product and it ties right into your example, Owaiz, is that as long... this is key, too... and don’t worry because you’ll talk you through this if you’re interested and you call us up, we’ll walk you through this... but it’s extremely important to remember this. Only health expenses or medical expenses that were incurred after the effective date of the HSA being established are eligible to reimbursed from the HSA. I’ve had a number of conversations over many years where individuals will come up and say, “Yeah, I’m all set. I’ve got my insurance, ready to start up my account, I’ve got to reimburse myself for some dental work I had done last month.” Now, we don’t request... we don’t require receipts to be sent to us and it’s not our job to oversee that. That’s the IRS’s job. But I do give them a friendly reminder that only expenses incurred after the account can be set up can be reimbursed tax-free and legally. Owaiz, getting back to what you said, there are a number of individuals that will wait to reimburse themselves years down the road. Let’s say after the five years they’ve got that $4,000 ready to go, but they’ve been paying out of their own pocket the whole time. Well, those receipts are good to be reimbursed later on down the road. So, they may cash in that $4,000 and fly to Maui. They’ve already paid the medical expenses. Those are good for tax-free reimbursements from their HSA at any future date and time.
OWAIZ DADABHOY: Well, the $5,000 they’re putting in. They’re using $1,000 but they’re not pulling it out of the HSA. That $1,000 they didn’t pull out is able to grow, right? That’s the whole objective there.
MATT WARD: Exactly. And someday, when you decide, those receipts that have not yet been reimbursed from your HSA that end up to the amounts that you’ve reimbursed from your HSA, they can be reimbursed down the road at your choosing.
OWAIZ DADABHOY: And like you said, they don’t need to provide the receipts. They have to hold onto them in case they get audited by the IRS.
MATT WARD: That’s exactly right. If the IRS ever came knocking, you would just... because they are tax-free distributions, I don’t know if that gives the IRS more of an incentive to want to ask about those things but let’s just say I was holding onto receipts. I actually have an HSA and I try to reimburse myself from it as little as possible because someday my better half is going to want to use it for something. Well, that number, whatever that is, might be a significant number in ten years. As long as life doesn’t throw me any major curveballs and those are routine medical expenses, but that could be a significant number that comes out, maybe. I want to have every receipt ready if the IRS says, “Hey Matt, what’s the $12,000 you redeemed tax-free from your HSA.” And a lot of people do that at Saturna. Not just Saturna but other places as well. So, that just kind of is a quick hypothetical why we emphasize the important of holding onto those receipts. You want to make sure that every single one of them reconciles with your distributions.
OWAIZ DADABHOY: I did get a question from someone about, you know... what if they don’t have a receipt? Well, you can call up the dentist. They usually will send you a year-end recap. You call up your doctor and they’ll say, “Okay, let me get my assistant to send you something.” So, you can go back to those if you have forgotten to save them and just make sure at the end of the year, when you’re doing your taxes and you’re putting your paperwork for your taxes together, have a folder for your HSA receipts as well. Have a folder for your donations that you make so you can take care of your responsibilities with the government as well. And now we are moving onto personalized service.
MATT WARD: Yeah. So, Rachel and her team does an excellent job of helping individuals that know very little about HSAs and then of course our existing clients. Everybody under the sun as far as any questions that they have, Rachel’s team is here to service them. There are no silly questions with this product. They can be a little bit complicated as we’re giving you a lot of information here. But there’s really only a good handful of main points to take away but we are here to answer every single one of your questions. I’ve given some... I’ve spoken to some of these points already and I don’t want to take up too much airtime than is needed. But I will just say that last point. I mean it’s very easy to set up automatic investments into your HSA via ACH and in our other products as well.
OWAIZ DADABHOY: And there are a couple of different ways to go, to the audience, right? You want to write a check every year for $7,200. Fine. If you have a lot of money in your account and you’re okay with writing a large check like that. What I like to do and what I like to tell our clients that are talking to me directly is to set up that automatic contribution for a couple of reasons. One, you don’t forget to make that annual contribution. Two, it’s not a large hit every year, $7,200. And three, your dollar cost averaging into your investments. Right? So, if you know, the price of the Amana share that you’re buying... I’m just going to make up a number, is $50 a share at the beginning and you’re putting in $100 every time, you’re buying two shares. But if it goes down to $45, you’re buying more than two shares. So, that’s one of the ideas that I would say is to always dollar cost average. What happens when you turn 65? Right? Because something does happen. Who wants to address that?
MATT WARD: I can touch on it. Rachel kind of put the primer on earlier. She made references to when you go on Medicare, you’re not allowed to contribute to your HSA anymore. The reason why that is... it’s similar logic even when before you reach Medicare. If you were to say... I’ll give you two hypotheticals. One, you go on Medicare. It’s supplemental insurance. It’s added insurance. To be eligible to contribute to an HSA, you can’t have any other source of insurance. Okay? So, even if I have a qualified high deductible health plan that covers myself and my family, if I piggyback off of my spouse’s plan through her employer, that makes me absolutely ineligible. So, whether it’s Medicare you’re adopting, you drop the insurance that greenlit you to make contributions to begin with, or you keep that insurance and liked I said, piggyback off of my spouse’s insurance or some other service, that makes you ineligible to contribute.
OWAIZ DADABHOY: Got it. Thank you. We skipped over a couple of the pages there so we could get to your questions. We are running a little bit long. If you want to take a screenshot of this particular slide, you can find Rachel’s extension and Matt’s as well, as well as mine and my team also. So, please take a screenshot, contact us, email us, ask us further questions. I don’t see too many questions in the chat groups at this point, which maybe means that we have addressed a lot of them already. There was a question, let me see if I can go back here. There was a question about eligibility. So, I’ll just put that on the screen for the person that asked so they can take a screenshot of that while we go through some other questions. Rachel, I have a question for you. So, you know, these individuals that already have an HSA, they have a high deductible health insurance plan and they come to us and they want to open up either an investment account through mutual funds, usually Amana Funds if they are Muslim clientele, or perhaps some of the other funds as well, but they might open up a brokerage account because they want to buy individual stocks or some other funds that we don’t carry. [EDITOR NOTE: As of January 2023, Saturna no longer offers a brokerage option in HSAs.] What about employers, though? Like, what if an employer is listening to us today and they have ten employees and they have a high deductible health insurance plan. What can they do with us?
RACHEL GOTTLIEB: Well, employers who want to offer HSAs to their employees, I mean it’s smart and savvy because it helps with retention and giving your employees the ability to have control over their health care and rising costs, right? If the employers out there, somebody is interested in doing that, we will definitely sit with you, go over different paperwork. We do streamline it to the best of our ability and simplify the process, but we do open those and for their employees. We do take contributions for the employees, and we do have several existing employers that do offer HSA plans to their employees.
OWAIZ DADABHOY: Got it. Alright. So, if either of you have anything you can speak about in a second after I just mention a short recap here of why I like the HSA so much and why we are talking about it today. It is triple tax advantaged, as you heard. So, you know, you can’t get that with a Roth or a Traditional IRA or even Education Savings Account or SEP or 401(k). So, this is the triple tax advantage. The difference here compared to, you know, either the traditional or the Roth IRA is that both of those give you one or two different possibilities, right? So, the traditional IRA gives you the tax deduction up front and then you don’t pay taxes along the way, but when you pull out the money, and let’s say you’ve saved up a million bucks, you’re going to pay taxes on the full million dollars at that time. The Roth IRA, if you reach a million dollars at the end of whatever the number is, you won’t pay a dime in taxes which is beautiful and you didn’t pay taxes along the way on the dividends or sales that you made, so you have two tax benefits there, but you didn’t get the third tax benefit which is a tax deduction right up front. So that’s why we say the HSA is a special type of account. The reason why it’s there is because the government knows that they cannot take care of all of us in terms of health care, right? They are trying to give us tax advantages to be able to save on our own. That’s the same thing they have done with the 401(k). They have made it tax-advantageous so that we would take care of it. The other reason I do like it... you know, we at Saturna use an HSA for employees for those that want to sign up for that. They can have the HSA or a regular insurance plan. For those of us that have signed up for the HSA, we have built up balances in there, right? Our employer contributes a little bit. We put in some money. And then the investment, you know, will do its thing. And so, you know, we have been able to have some money there and so you start thinking about it and you say, “Well, if this grows into a large amount of money, I may not ever use it just for health insurance costs,” right? So, what else can I use it for? We talked about this. When you turn 65, it basically will be the same as a Traditional IRA at that point if you’re withdrawing. So, let’s say that by that time you have $150,000 in the account and you know, you want $25,000 for whatever you want it for besides health care. You can pull out $25,000 and you will just pay taxes on what you pull out. So, you pay taxes on that $25,000, there’s no penalty, even though you didn’t use it for health care costs, there’s no penalty. I’ll give you a personal aside and then we will turn it over to Matt and Rachel if they have any closing words is that, you know, since I’ve started this personally, I have been able to use it for my children’s orthodontic work and, you know, other dental costs that come up. Vision, as well. I like telling people I have one bionic eye so that was paid for by this great HSA where I was able to build up balances and I do use this strategy most of the time where if I have small bills that I’m paying, I write the check, I save the receipt. At the end of the year or maybe next year, I’ll look at all of my receipts and say, “Alright, you know what? This is a good time. I’m going to go pull out all of this money and then I’m going to go spend it on something else.” So, there are some real great flexibility points on an HSA. Matt, Rachel, if you have anything final, otherwise we will wrap it up.
RACHEL GOTTLIEB: I think that, you know, reading through statistics and data, one of the hardest challenges for employers with getting employees to open these HSA accounts so they can take advantage of the tax savings is the convoluted amount of information there. There is a lot of information there to absorb and digest and here at Saturna we want to make that as easy as possible for you. While we’re not tax professionals, we don’t offer legal guidance, we will answer your questions. If we don’t have the answer, we will hunt it down for you. So, if after this meeting, you do have any questions, please feel free to reach out. I know Owaiz put out contact information up. But if you are eligible and not taking advantage of opening an HSA, you really could be missing out on the opportunity to reduce that tax burden and increase your retirement savings. And, you know, like I said earlier, protect yourself against the rising costs of medical. So, with that said, thank you for allowing me to join you today and, again, information is out there so please let us answer your questions.
MATT WARD: I would echo everything that they both just said. We just appreciate you guys and we’re here to help with any questions that you have down the road. Appreciate you taking the time out of your day today. Yeah. It really is a fantastic product if the insurance works for you. It’s the only source of insurance that you have. If you’re already in that boat, some people are already investing in a high deductible, and they don’t even really quite understand that the HSA is their good friend. It’s been kind of walking in the shadows the whole time. It really is a nice, really nice product if it suits your lifestyle, and it meets the insurance needs.
OWAIZ DADABHOY: Thank you both for joining us and for everybody else that joined to listen. You may... a couple of people have asked where do we get this because I joined late? Where do I get the recording? So, in a few weeks or so it’ll be on our website on AmanaFunds.com or Saturna.com. But if you want to find it easily you can just go to your search engine and search “Saturna webinars” and you’ll find the past ones we have done as well on 401(k)s and Education Savings Accounts and trusts and specific mutual funds that we offer as well. If you think that some of your friends or family, your children, your nephews or nieces, right? Grandchildren. They might need some of this information, they’re just not listening to you, you might want to share a video with them, you can share one of those webinars or one of our Halal Money Matters podcasts as well. Again, thank everyone and we will see you next month for our next webinar. Thank you very much.
Please consider an investment’s objectives, risks, charges and expenses carefully before investing. To obtain this and other important information, which you should carefully consider before investing, about the Amana Funds in a free prospectus or summary prospectus, please visit www.amanafunds.com or call 1-800-728-8762.
More About Saturna Health Savings Accounts (HSA)
A health savings account (HSA) is a tax-advantaged savings account that you use to pay for IRS-qualified health care expenses. Generally, anyone who is covered under a qualified high-deductible health care insurance plan may open an HSA.
Download Our Brochure
This material is for general information only and is not a research report or commentary on any investment products offered by Saturna Capital. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.
We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This podcast is prepared based on information Saturna Capital deems reliable; however, Saturna Capital does not warrant the accuracy or completeness of the information. Investors should consult with a financial adviser prior to making an investment decision. The views and information discussed in this commentary are at a specific point in time, are subject to change, and may not reflect the views of the firm as a whole.
All material presented in this publication, unless specifically indicated otherwise, is under copyright to Saturna. No part of this publication may be altered in any way, copied, or distributed without the prior express written permission of Saturna.