Are You Paying Too Much in Taxes? A Pastor’s Guide to Relief

Pastor, are you paying too much in taxes? Do you avoid thinking about retirement? Does the cost of healthcare concern you? If so, you’re not alone. You’ve witnessed your congregations struggle with these same issues, and I’m here to let you know it’s okay to admit you’ve struggled too. You aren’t immune from the challenge of balancing the needs of today with those of tomorrow. 

Here’s where the struggle gets real. Many pastors think planning for tomorrow equates to a lack of faith and may even use the words of Jesus to justify their decision not to plan.

Do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. (Matthew 6:34)

These words hold a fundamental truth: Excessive worry doesn’t solve today’s problems nor prepare us for what lies ahead. God’s intention isn’t for us to ignore our responsibilities. Instead, it’s to encourage us not to become so entangled in tomorrow’s concerns that we miss the blessings of today. We must learn to discern between worry and wise planning. God’s message isn’t a call to bury our heads in the sand. Instead, it’s an invitation to align our hearts with His guidance and embrace our role as stewards of all He provides.

Now that we’ve settled that, what if I told you there was a financial tool that could help you address your concerns about taxes, retirement, and healthcare? Let me introduce you to the Health Savings Account. It’s the secret sauce that should be a part of every pastor’s financial strategy. And the best part? I’ve seen it work, not just for others, but for me too.

Imagine a special type of savings account just for your health-related expenses – one that offers you tax advantages and helps you save for future medical costs. That’s exactly what a Health Savings Account (HSA) does.

But here’s where it gets exciting: An HSA is more than just a piggy bank for healthcare costs. It’s a financial tool with benefits that extend well beyond the doctor’s office. 

 The concept is simple: You contribute money into this account before it gets taxed (yes, you heard it right, tax-free contributions!), and then use it to pay for a wide range of qualified medical expenses. You can establish one through your employer if they offer it or through many banks and other financial institutions. 

There are annual contribution limits, and the rules for using the funds are specific. In 2023, you can contribute up to $3,850 if you have health coverage just for yourself or $7,750 if you have coverage for your family. If you are 55 or older, you can contribute an additional $1,000.

The real beauty of an HSA lies in its versatility and potential to revolutionize your financial strategy. To truly understand the power of an HSA, we need to think beyond its immediate use for healthcare expenses. It’s like discovering a Swiss Army Knife when you were only looking for a simple can opener.

First and foremost, the triple tax advantages of an HSA are hard to ignore.

Your contributions are tax-deductible, your money grows tax-free, and withdrawals for qualified medical expenses are also tax-free

It’s a win-win-win situation!

But that’s not all. Your HSA funds roll over year after year. There’s no “use it or lose it” policy like an FSA. It’s even possible to invest your HSA funds into mutual funds, meaning there’s potential for you to grow a substantial nest egg for healthcare costs in your retirement when you’re likely to need it most.

Still, that’s not all! After you reach the age of 65, you can withdraw HSA funds for non-medical expenses without penalty. Yes, you’ll have to pay income tax on those withdrawals, but it essentially works like a traditional IRA at that point. 

In the words of Tim Cook, there’s one more thing: Unlike a traditional IRA, there’s no RMD with an HSA. 

So, while you’re dutifully saving for future medical expenses, you’re also quietly building a backup retirement fund. How’s that for multitasking? In essence, an HSA is not just a healthcare tool; it’s a powerful financial planning instrument. I

 Maximizing Your HSA: Strategies and Tips

  1. Make Regular Contributions: The more you contribute (up to the annual limit), the more you can benefit from tax-free growth. If possible, aim to max out your contributions each year.
  2. Invest Your HSA Funds: Many HSAs allow you to invest your funds in a variety of investment options, similar to a retirement account. Over time, this can significantly increase your savings.
  3. Save Your Receipts: Keep track of all your medical expenses. Even if you decide not to withdraw from your HSA now, you can reimburse yourself tax-free at any point in the future as long as you have the receipts.
  4. Delay Withdrawals: If you can afford to pay out-of-pocket medical expenses, consider letting your HSA funds grow. This will allow you to build a substantial healthcare nest egg for the future.
  5. Use HSA Funds for Long-Term Care Insurance: After age 65, you can use your HSA to pay premiums on a long-term care insurance policy. This can be a great way to prepare for potential long-term care needs.
  6. Consider Your HSA in Your Retirement Planning: Remember, after age 65, your HSA functions much like a traditional IRA. Plan accordingly and consider it as part of your overall retirement strategy.

The beauty of an HSA lies not just in its immediate tax benefits but also in its potential for long-term growth and security. By leveraging these strategies, you can turn your HSA into a powerful healthcare and financial planning tool.

Common Misconceptions About HSAs

  1. You lose your HSA funds if you don’t use them within the year. Truth: Unlike some health plans, HSAs do not have a “use it or lose it” policy. Your funds roll over from year to year, allowing you to accumulate savings over time.
  2. You can only use HSA funds for doctor visits and prescriptions. Truth: While these are common uses, HSAs cover a wide range of qualified medical expenses, including dental and vision care, mental health services, and certain over-the-counter medications.
  3. If you switch jobs, you lose your HSA. Truth: Your HSA is yours to keep, regardless of your employment status. You can continue to use your account to pay for eligible healthcare expenses.
  4. HSAs are only beneficial for people with high healthcare costs. Truth: While HSAs can help those with high healthcare costs, they are especially helpful for people who are healthy and don’t presently have high medical expenses, such as tax-free growth and the potential for future healthcare savings.

HSAs are more than just a way to save on healthcare costs; they’re an underutilized financial tool with the potential to enhance your financial picture significantly. Whether you’re currently dealing with high medical expenses or preparing for future healthcare needs, an HSA can provide valuable benefits.

By understanding the versatility of an HSA and implementing effective strategies, you can leverage this powerful tool to not only manage your healthcare costs but also bolster your financial planning. 

Remember, when it comes to HSAs, think beyond the doctor’s office. 

If you want to know more about how an HSA could benefit your situation, message me, and let’s talk.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

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Todd Hukill

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