Roth IRA v. HSA: Which is Better?

WEBVTT
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Welcome everyone to the Directed RA podcast.
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This is Matt Sorensen joined by the incredible Mark J.
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Kohler talking about one of the most critical topics when you're thinking about investing in savings.
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Yeah, this is gonna be a fight today.
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I was like, I'm ready to duke it out.
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He's like, what?
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We're gonna we're gonna go hard today.
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I'm like, yeah, I'm we're going one-on-one.
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One on one mono on mono.
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Yeah.
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Yeah, we're gonna which one's better?
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Many of you ask, well, if I've only got five grand or ten grand, or what should I fund first?
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Which one's better?
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Like, what do I need which one for?
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We're gonna break it all down today.
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And uh who you take it.
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Yeah.
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Well, we're talking about we haven't even said who's in the ring with us.
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Oh.
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I mean, I know we're fighting, but we're fighting for something.
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And I am fighting for Roth IRA.
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Yeah, that's your wingman.
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Okay.
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I'm Team Roth IRA, and I'm gonna tell you why you should have it, why this should be the number one account, the first account you fund before anything else.
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Now, take that with a grain of salt, people, because I'm gonna tell you he's wrong, and we are and I'm gonna tell you the HSA is the first one you should be funding, and I got some incredible reasons why.
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So let's get into it.
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Because I'm a fair fighter, you know.
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Yeah, I'm gonna let you go first.
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You don't take the first punch.
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The first punch.
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Yeah.
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What was it in Yellowstone where Rip and Sony they they he said fight it out and they had to they just punch each other in the face, or maybe it was Beth and that other uh that environmentalist they went at it too.
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So but no, my dude, I so I you take the shot.
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Okay, all right.
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Yeah, all right.
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Roth IRA, first point here.
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Um tax free.
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Uh can we get better than that?
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You get to pull the money out, tax-free, when you put it in the Roth account.
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We know I gotta put the money in and contribute.
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We'll talk about that.
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But the number one benefit of the Roth IRA, and there's many.
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I want you to make sure this is not, I got a lot more punches to this.
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Is it a speech?
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Are you gonna Okay, go ahead?
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Yes.
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Keep going.
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Yes, this is my time.
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Okay, get yours.
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How much time are we yielding to the senator from Arizona?
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Okay.
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This is a whole podcast episode.
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We gotta get a whole episode out of this.
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Okay.
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We got a million, okay.
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Unbelievable.
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Okay.
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So it grows tax-free.
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I'm ready to follow.
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Okay, but anyway, go ahead.
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Okay.
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Oh, you like paying taxes.
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I'm just saying, here's the thing.
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So does an HSA.
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It grows tax-free too for certain things.
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Okay, the money's gonna come out totally tax-free when you hit retirement at age 59 and a half.
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Oh, I can let you take out the HSA anytime you freaking want for a qualified medical expense, and it's a book.
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Uh number one reason people go bankrupt in America, medical costs.
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I can take money out anytime I want.
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I don't have to wait till I'm 59 and a half, and I get tax-free growth too.
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Pendrob.
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All right, all right.
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Do I can I point out some negatives at the HDA?
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Okay, let's unpack those two first.
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Okay.
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So we unpack those a little more.
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Yeah, you're right.
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Because we're gonna let me beat yours up a little bit.
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You want to beat mine up?
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Yes, I won't interrupt you this time.
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Feel free.
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Okay.
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So I will talk about the negatives of the HSA.
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Okay.
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All right.
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You must have a high deductible plan.
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Not everyone can do an HSA.
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I'm gonna talk later about how everyone can do an HSA regardless of income.
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But not everyone can do an HSA because you must have a high deductible plan.
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Okay.
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Now, I I I did that.
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I'll let I'll let that settle in.
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That hit.
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Yeah, that landed.
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Okay.
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Now, what I will say is I do I do want to unpack our first rapid fire there.
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It was like two quick punches.
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Yes.
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You know, like it went hard.
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Yes.
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So if for some of you that maybe don't have a Roth or don't have an HSA, I wasn't kidding, obviously was not kidding here.
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Both are tax preferred accounts.
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They are part of the IRS code that says if you put money in these accounts, you can invest them.
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We're talking about probably that trick here in a minute.
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You can invest those and you don't pay taxes along the ride.
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You're boom.
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I can buy a stock, it goes up in value, sell it, no tax, whatever.
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We can we think of this with the IRAs and 401ks, but it's just still so odd how so many people are still catching up to the fact the Roth grows tax-free, comes out tax-free, and the HSA was built as a pretty cool thing.
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We'll get more into that, as the same type of account that grows tax-free, then can come out tax-free for medical costs at any time.
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So I don't know.
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Do you want to add to that?
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I just wanted to slow down.
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Everybody soak that in.
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That's a big deal.
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Yeah, I mean, I I think the the nice thing about these two accounts, I will say, is we are getting tax-free growth.
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These are the two accounts, and you can maybe do a Roth 401k, is the only other one that could come close.
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But these are the two accounts that I put my money in and I invest it.
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The government's like, go make money in it, go grow it.
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Invest it in stock, in real estate, in crypto, in a private fund.
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You can self-direct these, put them in whatever investment you want.
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When that's growing and making money, you don't have to pay the IRS.
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Nothing's going on in your tax return.
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Even though that that investment has income or you sold it for a gain, it's building up in this account.
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And then when you want to use it, the Roth IRA at 59 and a half, I can pull it out totally tax-free.
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The HSA, and this is a this is a benefit at any age I can pull it out.
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You know, I gotta, you know, I gotta that's maybe a block or something.
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I know that one's coming, so I'm just like, you know, you're gonna own it.
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Yeah, you know, you can pull money out of your HSA when you're 20.
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You know, it doesn't matter if you have qualifying medical.
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Um, but there's something about the HSA we haven't talked about that that I will that I know is coming and it's gonna hurt.
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Oh, okay, okay.
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So see.
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All right.
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Now we talked about that tax-free growth, tax-free withdrawals.
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You all know when that happens.
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And then Matt brought up the the insurance policy.
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Now I want to be a little more clear on this too, because some people would say, well, too complicated.
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Uh I have to have a certain type of policy.
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I don't have time for that.
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I go to work, we go to the lunchroom once a year, and they give me choices.
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I get the policy that has the doctor I like, blah, blah, blah.
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Let me just say it's it's very important you understand that where you have your health insurance does not dictate where you have your HSA, when you fund it, where you fund it.
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So if you go to work and you go to the lunchroom for that annual enrollment meeting, or you're an entrepreneur getting online.
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I don't know how many places of employment have a lunchroom, but keep going.
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I like this story.
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Work with me here, work with me.
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All right.
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So where are we?
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What is are we at Google?
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There are people.
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See, you're an entrepreneur, you don't realize this.
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There's lunchrooms around here.
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Okay, so all right.
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So entrepreneurs online or calling their agent or you're an employee, you're gonna make a choice for your health insurance.
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And oh, I want an HMO, I want a high deductible, low deductible, and all that.
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I just want to um like you know, it's not that hard to say, you know what?
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I don't go to the doctor a lot.
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I don't mind having a high deductible plan.
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So if something really bad happens, I got a plan to protect me.
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But with that higher deductible, I might even have a lower premium.
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And once you have that type of policy, you're in.
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That's the that's the key to the party.
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I can now get in the past, the whatever.
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I've got a ticket now into the party, and I can go and start investing money in an HSA account wherever I want to form it.
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It does not have to be at work, it does not have to be at the same insurance company.
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In fact, most insurance companies they don't even have an HSA plan, they just have the insurance plans.
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Then you go to like directed IRA and say, hey, I want to set up an HSA.
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So that's you know, punch there was you know, it was a little hard, but it wasn't that heavy of a punch.
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I think you all need health insurance anyway.
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And if you don't go to the doctor a lot, just get a high health plan.
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You're in the party.
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Yeah, and even the bronze plans now.
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If you're self-employed or you're buying health insurance on the individual market, bronze plans now qualify for HSAs.
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That was part of the one big beautiful bill.
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So they're more and more common that you can find them.
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And um, so that is actually, I mean, I I wanted to throw the punch, but yeah, yeah, you can, and I've had an HSA, had high deductible plans.
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And so let's say you put the money in.
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I think you made a really good point on the HSA.
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And I want to just pack it just a little bit more for a second.
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A lot of employers, particularly if you have health insurance through work, will say, Well, okay, I got the Blue Cross Blue Shield high deductible plan that qualifies for an HSA.
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And even my employer puts, they incentivize me to get that plan because it's cheaper for them.
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And they'll tell me they'll put$500 a year in my HSA for me.
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Great.
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But it's in this HSA savings account at a bank.
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And I got a debit card.
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Cool.
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Well, what is that invested in?
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Most of those are in banks getting you a terrible return.
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They're paying you like interest on it.
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It literally is a savings account.
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When you think of an HSA, do not think of a savings account.
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Think of it as an investment account.
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They should freaking call it a health investment account instead.
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Yeah.
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Okay.
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You can invest that money.
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Why would you go let it earn 1% or less?
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Just like a bank account is a deposit.
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Let's go and invest it because that grows and comes out tax-free.
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Okay, now I'm going to set the stage here.
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We're right up close to the bell on round one, and I got to get in a punch here.
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Okay.
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So, because we're going to finish round one tied.
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Okay.
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All right.
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So you're saying you can't put money in an HSA unless you have the right type of insurance policy.
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I'm going to tell you, you can't put money in a Roth IRA unless you have earned income.
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So if you're trying to fund a Roth IRA for your kids, if you're an entrepreneur, it might be able easy to you might be able to, and it's easy to generate some earned income for them, paying them out of the business.
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But, you know, I've got a grandma, she's on Social Security now, and passive income from investments.
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She can't put new money in a Roth.
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Social Security does not count for a Roth contribution.
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Passive income, like rental income, stocks bonds, whatever, dividends.
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You gotta have earned income.
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So I mean, there is a little barrier there.
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Yeah.
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That's true.
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Can you live with that one?
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That that hits that lands.
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Okay.
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It's like battleship like B14.
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You smoke my battleship.
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You suck my battleship.
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I love that.
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Okay.
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That commercial.
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Yeah.
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Okay.
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So that that is true.
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Now I want to hit a couple things to make sure everybody understands that.
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Generally, the Roth IRA is for people making money, anyways.
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Okay.
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Like we're making money and investing it.
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Sorry for those out there not making money.
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I'm just saying if you don't have a job, I don't think your first priority or earned income from a business or employment, your first priority is like getting money in a Roth IRA.
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It might be getting a job.
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Okay.
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Fair enough.
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Now, you might be uh, let's say you're a married couple, you've got kids, or you have a non-working spouse.
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Well, actually, that non-working spouse can still contribute to an I a Roth IR, even though they don't have income, because they can count the working spouse's income.
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So there's a workaround in a couple scenarios.
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That would be one, the non-working spouse.
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Now you brought up the kids' Roth IRA.
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We love kids' Roth IRAs.
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You can, especially if you're a business owner, because you can pay your kids, take a deduction in your business.
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They pick up the income, they're in a zero tax bracket, and then they can drop that money into a Roth IRA.
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We would have all loved that Head Start as teenagers, right?
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Like it.
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Bing.
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Okay, into one.
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But here's what here's what I here's what I'll say on this.
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Oh, you're getting a little punch.
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I'm Rocky going to my corner, and you're like, yeah, Apollo Creed, you're taking a cheap shot.
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Okay, go ahead.
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Actually, I don't know the answers.
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Can you do a kid's HSA?
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No, if you're dependent on someone else's insurance plant, then you're in the family.
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I just let you hit yourself.
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Set you up.
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Damn you.
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What did I fall for that?
00:11:49.440 --> 00:11:52.240
I don't that was the sucker punch.
00:11:52.480 --> 00:11:52.559
Okay.
00:11:52.879 --> 00:11:53.679
You're like, I know the answer.
00:11:53.840 --> 00:11:54.639
But it was after the bell.
00:11:54.720 --> 00:11:55.600
It was after the bell.
00:11:55.840 --> 00:11:57.919
That was that was I tripped on the way.
00:11:58.159 --> 00:11:58.320
Okay.
00:11:58.399 --> 00:11:58.480
Yeah.
00:11:58.559 --> 00:11:58.720
All right.
00:11:59.039 --> 00:11:59.840
Isn't round two yet?
00:12:00.000 --> 00:12:00.159
Okay.
00:12:00.240 --> 00:12:00.879
Yeah, round two.
00:12:01.120 --> 00:12:10.639
Now, this is this is a good one because you brought up that there's might be a deduction if you were to pay your kids to put money in a Roth.
00:12:10.799 --> 00:12:13.039
Do you do you get a deduction when you put money in a Roth?
00:12:13.279 --> 00:12:13.759
I'm sorry.
00:12:14.240 --> 00:12:14.480
No.
00:12:14.960 --> 00:12:15.679
Are you stuttering?
00:12:15.759 --> 00:12:17.120
Is there a Niner in there?
00:12:18.159 --> 00:12:18.480
Okay.
00:12:18.559 --> 00:12:21.440
Oh, so this is zero in there.
00:12:22.879 --> 00:12:23.840
Run back now, everybody.
00:12:24.240 --> 00:12:25.279
You're watching this on camera.
00:12:25.440 --> 00:12:28.720
Okay, so if you put money in a Roth, that's great.
00:12:28.879 --> 00:12:30.960
You got to pay tax on that money before you put it in.
00:12:31.120 --> 00:12:32.240
Yeah, it grows tax-free.
00:12:32.320 --> 00:12:33.039
So is the HSA.
00:12:33.200 --> 00:12:33.840
Oh, you can pull it out.
00:12:34.240 --> 00:12:35.440
Yeah, we already went through that.
00:12:35.600 --> 00:12:38.559
But you don't get a deduction when you put money in that Roth IRA.
00:12:39.120 --> 00:12:48.240
Spoiler alert, with the HSA this year, 2026, if you are married, you can put in up to$8,750.
00:12:48.639 --> 00:12:49.759
That's head of household as well.
00:12:49.840 --> 00:12:57.200
So I should say, yeah, if you're ahead of household with a dependent in your home, or you're married with no kids, just have to have this more than one.
00:12:57.519 --> 00:12:57.919
More than one.
00:12:58.159 --> 00:12:58.320
Yeah.
00:12:58.559 --> 00:12:59.679
Then you're a kid.
00:13:00.879 --> 00:13:03.360
If you're single, it's$4,400.
00:13:03.759 --> 00:13:07.759
That's a tax deduction on the front page of your tax return.
00:13:07.840 --> 00:13:09.440
Your AGI does not matter.
00:13:09.919 --> 00:13:11.519
Who cares about earned income?
00:13:11.679 --> 00:13:12.320
Does not matter.
00:13:12.480 --> 00:13:14.799
You get that right off if you put money in the HSA.
00:13:15.759 --> 00:13:17.120
But there's more.
00:13:17.279 --> 00:13:22.480
If you're between age 55 and 65, I can put an extra catch-up of$1,000.
00:13:22.879 --> 00:13:25.759
If you're ahead of married, that's$1,000 each.
00:13:25.919 --> 00:13:31.600
So you could put up to$10,750 tax deduction on the front page of your return.
00:13:32.080 --> 00:13:35.120
Now it's growing tax-free, coming out tax-free.
00:13:35.200 --> 00:13:36.960
That's a that's a trifecta.
00:13:37.200 --> 00:13:38.159
I just hit a triple.
00:13:38.240 --> 00:13:39.360
You're only hitting doubles over there.
00:13:39.440 --> 00:13:39.679
Sorry.
00:13:40.159 --> 00:13:40.399
Okay.
00:13:40.559 --> 00:13:41.919
Now I've got a counter for this.
00:13:42.159 --> 00:13:45.759
If we're talking about contributions, that is correct.
00:13:46.159 --> 00:13:48.879
No tax deduction on the Roth IRA.
00:13:48.960 --> 00:13:50.960
And that that is owning that.
00:13:51.519 --> 00:13:51.840
That's true.
00:13:52.159 --> 00:13:54.000
I mean, I can't republic.
00:13:54.480 --> 00:13:55.440
You can't dodge that one.
00:13:55.519 --> 00:13:57.679
That's just you're just done there.
00:13:57.759 --> 00:13:58.080
Okay.
00:13:58.320 --> 00:14:02.639
But now Mark talked about you're maybe a married couple.
00:14:02.879 --> 00:14:06.559
Um, you can be doing, what is it,$87.50 for 2026?
00:14:07.200 --> 00:14:12.080
Um, how much could I do a married couple put into a Roth IRA in 2026?
00:14:12.799 --> 00:14:13.279
Bell's over.
00:14:13.519 --> 00:14:13.679
Okay.
00:14:13.759 --> 00:14:15.039
So you don't get danced.
00:14:16.879 --> 00:14:21.360
Because each person can do$7,500 a year as a contribution.
00:14:21.440 --> 00:14:26.960
So between a married couple, you could be doing$15,000 into the Roth IRA.
00:14:27.120 --> 00:14:32.080
If you're age$50 or older, you get an extra$1,100 per person that's over$50,000.
00:14:32.240 --> 00:14:34.240
So you could be doing$8,600 a year.
00:14:34.399 --> 00:14:38.240
That's over that's$17,200 if I did the math right there.
00:14:38.399 --> 00:14:41.679
For a married couple, that's both contributing to Roth.
00:14:41.919 --> 00:14:45.039
So I don't get the deduction, but I can get more money into it.
00:14:45.200 --> 00:14:49.279
And if you're single, it's$7,500 versus what is it,$4,300.
00:14:49.600 --> 00:14:50.559
But man, I make too much money.
00:14:50.639 --> 00:14:52.559
I can't I can't put that in my Roth.
00:14:53.200 --> 00:14:54.399
So okay, forget it.
00:14:54.720 --> 00:14:56.399
That doesn't even count because I make too much money.
00:14:56.480 --> 00:14:58.240
I can't put money in the Roth anyway.
00:14:58.559 --> 00:14:58.879
Okay.
00:14:59.200 --> 00:15:01.840
Now this is a punch that missed.
00:15:02.000 --> 00:15:02.559
Yeah, that missed it.
00:15:03.200 --> 00:15:05.120
Yes, that was my fake little punch.
00:15:05.279 --> 00:15:05.600
Yeah.
00:15:05.840 --> 00:15:07.519
Now you might have heard that before.
00:15:07.759 --> 00:15:09.039
Your financial advisor.
00:15:09.200 --> 00:15:13.440
Maybe you have a crappy accountant that told you that instead of a good one.
00:15:13.679 --> 00:15:22.639
And so there is an income limit that the IRS has set to say, hey, if you're over this income limit, it's around 150 single, 200k Mary approximately.
00:15:24.159 --> 00:15:27.679
Yeah, you can't just drop 7,500 bucks into your Roth IRA.
00:15:28.159 --> 00:15:37.840
But you can do what's called a backdoor Roth IRA, where instead of putting$7,500 into a Roth IRA, you put$7,500 into a traditional IRA.
00:15:38.000 --> 00:15:45.200
It's called a non-deductible contribution, which means you don't take a deduction, and you simply convert that$7,500 to a Roth IRA.
00:15:45.279 --> 00:15:47.440
There's no income restriction on a Roth conversion.
00:15:47.519 --> 00:15:48.879
That was removed in 2010.
00:15:49.039 --> 00:15:53.519
And so it's in these, in the end, you get the same$7,500 a year.
00:15:53.679 --> 00:15:56.559
Now we've got other podcast episodes, videos on that.
00:15:56.639 --> 00:15:58.240
There's a little more detail on that.
00:15:58.399 --> 00:16:04.720
But the bottom line is if you're a high income earner and someone's told you, like Mark just, you know, threw a wimpy punch there.
00:16:05.360 --> 00:16:06.720
Oh, ow, ouch.
00:16:07.679 --> 00:16:08.559
I was throwing you off.
00:16:08.960 --> 00:16:09.679
Sometimes you got a jab.
00:16:09.759 --> 00:16:10.159
It was a jab.
00:16:10.240 --> 00:16:10.559
Yeah, that was.
00:16:11.600 --> 00:16:14.399
You remember um Mike Tyson's punch out, Glass Joe?
00:16:14.559 --> 00:16:17.120
Remember, he was like the first guy you fought in the video.
00:16:17.600 --> 00:16:18.399
Oh, yeah, yeah, yeah, yeah.
00:16:18.480 --> 00:16:18.639
Yeah.
00:16:18.799 --> 00:16:18.960
Yeah.
00:16:19.039 --> 00:16:20.320
That was a glass joe punch.
00:16:20.480 --> 00:16:20.639
Okay.
00:16:20.720 --> 00:16:21.600
He was kind of a wimpy.
00:16:22.320 --> 00:16:22.480
Okay.
00:16:22.559 --> 00:16:22.720
Okay.
00:16:22.799 --> 00:16:22.879
Okay.
00:16:22.960 --> 00:16:23.120
All right.
00:16:23.200 --> 00:16:26.080
It was not Soda Popinski or what were the other?
00:16:27.360 --> 00:16:27.919
Those are good ones.
00:16:28.240 --> 00:16:28.799
Holding those out.
00:16:28.960 --> 00:16:29.840
Yeah, I can't remember those.
00:16:30.080 --> 00:16:32.000
You know, that's most boxing as I know.
00:16:32.080 --> 00:16:32.240
Yeah.
00:16:32.399 --> 00:16:32.559
Okay.
00:16:32.639 --> 00:16:34.159
So Tristan, into round two.
00:16:34.320 --> 00:16:35.519
I think we're tying here again.
00:16:35.919 --> 00:16:36.879
I think we're we're tied.
00:16:37.039 --> 00:16:37.200
Okay.
00:16:37.279 --> 00:16:37.440
Okay.
00:16:37.519 --> 00:16:38.720
Now I've got I've got a new one.
00:16:38.879 --> 00:16:39.759
Are we into round three?
00:16:39.840 --> 00:16:40.639
Yeah, we're going round three.
00:16:40.720 --> 00:16:40.799
Okay.
00:16:41.039 --> 00:16:41.919
You need more time in the corner?
00:16:42.080 --> 00:16:43.600
I just didn't know if you wanted to cheat between rounds and two.
00:16:43.679 --> 00:16:45.120
Let me make sure.
00:16:45.840 --> 00:16:46.399
I need some.
00:16:46.720 --> 00:16:47.039
All right.
00:16:47.279 --> 00:16:47.600
Okay.
00:16:48.000 --> 00:16:48.559
I would.
00:16:48.879 --> 00:16:50.480
There's another interesting point.
00:16:50.720 --> 00:16:52.879
Because the HSA is built for life.
00:16:52.960 --> 00:16:54.720
It's like life happens.
00:16:54.960 --> 00:17:03.039
And what is super cool about the HSA that you do not get with a Roth is I open up my HSA and I put some money in it.
00:17:03.200 --> 00:17:05.200
And I'm like, oh, I have some medical bills.
00:17:05.519 --> 00:17:07.119
I guess I just better pull it right back out.
00:17:07.279 --> 00:17:09.440
Now, did you just manufacture it right off?
00:17:09.599 --> 00:17:10.160
Absolutely.
00:17:10.319 --> 00:17:20.319
You got your money in your HSA, you got a tax deduction, you want to pull it right back out for some dental bills, some surgery, whatever, go feel free.
00:17:20.640 --> 00:17:24.000
Or you can just let that money ride.
00:17:24.480 --> 00:17:26.079
Keep investing that money.
00:17:26.160 --> 00:17:31.359
Let it grow tax-free, but keep that receipt from that medical bill in the drawer.
00:17:31.519 --> 00:17:37.440
Put it in a scan it, put it in a digital file, and that's my future medical reimbursements.
00:17:37.680 --> 00:17:42.720
Because there is no time limit on reimbursing yourself for medical expenses.
00:17:42.880 --> 00:17:56.559
So once you open up that HSA and you start feeding the meter and it's growing and you're building it, and maybe you bought some real estate in there, maybe you bought some XRP and you're like, man, I want to write, I don't want to sell my XRP to go reimburse myself for a brute canal.
00:17:56.720 --> 00:17:59.119
I'm going to just put that receipt in the drawer.
00:17:59.440 --> 00:18:14.319
And once my account hits a critical mass and I'm going to just go grab some tax-free ATM money, you can turn in that receipt to yourself or the HSA company and get reimbursed for that medical bill.
00:18:14.400 --> 00:18:15.920
So you I got some flexibility.
00:18:16.160 --> 00:18:17.680
I mean, I'm sorry, how long do you have yet?
00:18:17.759 --> 00:18:19.440
You've heard you have 59 and a half?
00:18:19.680 --> 00:18:21.359
There's no oh what?
00:18:21.519 --> 00:18:21.759
Nope.
00:18:21.920 --> 00:18:23.119
Okay, all right.
00:18:23.680 --> 00:18:25.279
Now that is a true, that is true.
00:18:25.359 --> 00:18:30.799
Those are the great benefits of an HSA, but the Roth IRA is commonly misunderstood.
00:18:30.880 --> 00:18:44.720
The Roth IRA is the one account in all of tax advantage planning where I can drop my$7,500 in and next year, next month, 10 years, doesn't matter the age, I can pull out$7,500 whenever I want.
00:18:44.960 --> 00:18:52.400
The only amount that's locked up in a Roth IRA is the investment returns and growth that I have to wait till$59 and a half.
00:18:52.559 --> 00:18:59.039
So if I want that$7,500 back next month because I got in a car accident or next year because I lost my job, great.
00:18:59.200 --> 00:19:00.240
Take the$7,500.
00:19:00.640 --> 00:19:03.279
Maybe the account's worth$10,000 now because of investment growth.
00:19:03.440 --> 00:19:06.240
The additional$2,500 has to stay in the account.
00:19:06.319 --> 00:19:08.079
I can't pull that out without a penalty.
00:19:08.160 --> 00:19:12.960
So the Roth IRA is actually very accessible at any age.
00:19:13.279 --> 00:19:15.519
No medical expense necessary.
00:19:17.200 --> 00:19:17.839
What do you think about that?
00:19:18.079 --> 00:19:18.720
No, no, it's good.
00:19:18.880 --> 00:19:20.640
I mean, man, we're exchanging blows here.
00:19:20.880 --> 00:19:25.039
This is this it's getting it's gonna go to the cards.
00:19:25.119 --> 00:19:25.759
Is that what they're saying?
00:19:26.079 --> 00:19:26.400
That's true.
00:19:28.079 --> 00:19:29.039
There might not be a knockout.
00:19:29.119 --> 00:19:30.720
We're gonna need the judge's decision on this.
00:19:32.880 --> 00:19:33.039
Okay.
00:19:33.119 --> 00:19:34.720
Now I want to throw a caveat in there.
00:19:34.799 --> 00:19:34.880
Okay.
00:19:35.359 --> 00:19:37.599
Because we did bring up the backdoor Roth IRA.
00:19:37.759 --> 00:19:47.359
Now, the backdoor Roth IRA, pulling the money out early at any age, you have to wait five years because the the a backdoor Roth IRA isn't a regular Roth contribution.
00:19:47.440 --> 00:19:50.079
It's technically a traditional you converted to a Roth.
00:19:50.720 --> 00:19:59.519
Tax lawyer geeks speak, what that means is you have a five-year window after you did that conversion of when you can pull that converted amount of$7,500.
00:20:00.000 --> 00:20:01.680
Just want to throw a little caveat in there.
00:20:01.839 --> 00:20:04.319
Some of you more advanced people, that's helpful.
00:20:04.480 --> 00:20:08.480
If I lost you, well, all right.
00:20:08.720 --> 00:20:11.839
I'm gonna throw out another unexpected blow here.
00:20:12.079 --> 00:20:13.279
Just a little duck and roll.
00:20:13.359 --> 00:20:14.960
Maybe just something over?
00:20:15.920 --> 00:20:16.319
I don't know.
00:20:16.559 --> 00:20:18.880
I'm reaching, I'm reaching, I'm reaching on that.
00:20:19.279 --> 00:20:25.359
So uh I fund my HSA, and I maybe I had I'm doing a married plan.
00:20:25.519 --> 00:20:28.960
We're doubling down, we're putting in extra money, we're growing it.
00:20:30.160 --> 00:20:32.640
One of you's gonna die before the other.
00:20:32.960 --> 00:20:33.920
And guess what?
00:20:34.079 --> 00:20:40.880
Your spouse inherits that HSA, and they can keep pulling out for medical the rest of their life tax-free.
00:20:41.519 --> 00:20:49.200
And if your spouse says, ah, I'm I'm like you know, I'm like George Burns here, I'm gonna smoke two cigars a day for the rest of my life and live until I'm 105.
00:20:49.519 --> 00:20:51.440
And you're like, I never go to the doctor.
00:20:51.680 --> 00:20:57.279
You can actually go to that HSA and pull it out money after age 15 and a half, like an IRA.
00:20:58.400 --> 00:20:59.359
No penalty.
00:21:00.319 --> 00:21:00.880
Pretty cool.
00:21:01.039 --> 00:21:05.440
So, and if I die, the second spouse, it goes to the kids' IRA.
00:21:05.680 --> 00:21:11.599
So this thing's gonna say tax preferred into the next generation, to the surviving spouse.
00:21:12.319 --> 00:21:14.559
I think it's pretty pretty impressive.
00:21:14.880 --> 00:21:23.119
Yeah, I I this this is actually a really I'm glad you brought that up because let's contrast that with the Roth IRA when you die.
00:21:23.200 --> 00:21:25.200
And I actually think the Roth IRA wins on this.
00:21:25.680 --> 00:21:27.359
When you die, which one's better?
00:21:27.839 --> 00:21:28.880
The Roth IRA.
00:21:29.039 --> 00:21:30.160
I'm I'm not gonna answer that.
00:21:30.319 --> 00:21:32.480
Okay, because here was what happens.
00:21:32.880 --> 00:21:34.880
When when you die, we will all this will all happen.
00:21:35.200 --> 00:21:35.680
Yeah, sorry.
00:21:35.839 --> 00:21:37.039
Okay, spoiler alert.
00:21:37.200 --> 00:21:44.319
Yeah, we're growing and building wealth, and if you want to leave leave an account on to your family, what's the number one account to leave?
00:21:44.480 --> 00:21:46.000
In my opinion, it's a Roth IRA.
00:21:46.079 --> 00:21:46.640
Here's why.
00:21:46.880 --> 00:21:49.920
Your spouse can get it and it just turns into a Roth IRA in their name.
00:21:50.079 --> 00:21:52.000
If you don't have a spouse, no limits, it's good.
00:21:52.319 --> 00:21:52.480
Whatever.
00:21:52.559 --> 00:21:57.759
They can pull the money out, access it, it's tax free, can continue to grow and invest, it's freaking awesome.
00:21:57.920 --> 00:22:02.880
Let's say you don't have a spouse or your spouse's Already pre-deceased you, it goes to your kids or other heirs.
00:22:03.039 --> 00:22:06.559
Well, they're going to receive it in what's called an inherited Roth IRA.
00:22:06.640 --> 00:22:12.319
And they basically have a 10-year window where they could keep investing it if they want or they could withdraw the whole thing out.
00:22:12.480 --> 00:22:19.359
But it's still tax-free, whether they take the whole thing immediately once they get the account or they want to invest it for another 10 years and maybe double it.
00:22:19.759 --> 00:22:21.200
It's very easy for them.
00:22:21.359 --> 00:22:22.319
I shouldn't say easy.
00:22:22.480 --> 00:22:25.920
At an 8% rate of return, they will double it in nine years.
00:22:26.079 --> 00:22:34.160
So if they just keep investing it, that$500,000 Roth IRA you left them will be a million dollar Roth IRA that then they'll pull out totally tax-free.
00:22:34.400 --> 00:22:38.319
Now let's now let's contrast that to the HSA and your kids inheriting it.
00:22:38.400 --> 00:22:40.640
I get your spouse gets it and they can use it for their mouth.
00:22:40.720 --> 00:22:45.519
But if your kids inherit it, it is a Mark said an IRA, but be careful what he didn't say.
00:22:45.759 --> 00:22:47.759
You picked up on the Roth IRA.
00:22:48.079 --> 00:22:52.880
It's taxed like a traditional IRA, which means it's taxed on the training.
00:22:53.119 --> 00:22:54.400
I was ready for this, you know.
00:22:54.640 --> 00:22:55.519
You know, you're like little.
00:22:57.279 --> 00:22:58.559
So I I'll I'll own it.
00:22:58.640 --> 00:23:04.799
And what Matt's saying is if you don't use it for medical, you will pay tax when that money comes out.
00:23:04.960 --> 00:23:13.359
Now, if you're after age 59 and a half, there's no penalty, but if you pull it out before 59 and a half for something that's not medical, not good.
00:23:14.079 --> 00:23:15.440
Tax penalty.
00:23:15.599 --> 00:23:16.559
Well, and so is the Roth.
00:23:16.799 --> 00:23:19.440
I mean, you can't for earnings and same thing.
00:23:20.799 --> 00:23:21.759
Right, excuse me.
00:23:22.000 --> 00:23:23.920
So, all right, okay, fair.
00:23:24.000 --> 00:23:24.640
I've got one more.
00:23:24.799 --> 00:23:24.960
Okay.
00:23:25.200 --> 00:23:27.359
So let me put like one little bow on that.
00:23:27.680 --> 00:23:34.240
Is like if I've got both accounts, just think of you now planning, and you're like, which account should I spend down first?
00:23:34.400 --> 00:23:37.759
They're both tax-free, so none none of them, neither of them hit my taxable income.
00:23:37.920 --> 00:23:39.599
I can pull on the HSA or Roth.
00:23:39.839 --> 00:23:41.680
I would be draining the HSA first.
00:23:41.839 --> 00:23:50.400
Leave the Roth last because that's the one you want to have the balance for at the end for your spouse or kids to inherit, rather than the HSA.
00:23:50.720 --> 00:23:50.880
Yeah.
00:23:50.960 --> 00:23:52.720
Well, I totally concede there for sure.
00:23:52.880 --> 00:23:53.200
Yeah.
00:23:53.359 --> 00:23:58.319
Always pull from the HSA if you have the medical expenses and you're ready to do that.
00:23:58.640 --> 00:24:00.559
Now, um Okay, I've got a new one.
00:24:00.640 --> 00:24:03.759
I don't I don't know if you're gonna pick you heard this one recently.
00:24:04.160 --> 00:24:18.400
So for US corporation owners out there, what one of your main objectives is to keep your salary as low as possible, to keep that FICA expense down, and then push everything out as dividends and draws.
00:24:18.640 --> 00:24:19.279
That's your goal.
00:24:19.519 --> 00:24:22.960
So many people listening, you have that S-corp strategy down.
00:24:23.440 --> 00:24:41.119
So when you're crafting your W-2 at the end of the year, you can elevate your payroll amount for compliance with the IRS, but minimize the FICA on that payroll with two or three techniques.
00:24:41.519 --> 00:24:42.880
For example, health insurance.
00:24:43.039 --> 00:24:51.200
If your S-Corp pays your health insurance, it is compensation for the payroll assessment, but it's not subject to FICA.
00:24:52.079 --> 00:24:55.119
Well, my friends, the HSA is the same way.
00:24:55.279 --> 00:25:00.640
So if you're an S-corp owner, you want your S-Corp paying that HSA contribution.
00:25:00.799 --> 00:25:05.839
It's added to box one on your W-2, but not to box three and five.
00:25:06.079 --> 00:25:12.960
So now you're saving FICA on top of getting the tax deduction on the front page of your return.
00:25:13.680 --> 00:25:14.480
Take that.
00:25:14.799 --> 00:25:15.920
I did not know that.
00:25:16.160 --> 00:25:17.440
I learned something every day.
00:25:17.599 --> 00:25:17.759
Wow.
00:25:18.240 --> 00:25:19.200
I learned something from you all the time.
00:25:19.440 --> 00:25:20.160
That is a good one.
00:25:20.720 --> 00:25:22.559
That one was like punched to the gut.
00:25:23.359 --> 00:25:24.640
So I wasn't ready for it.
00:25:24.720 --> 00:25:26.799
I was like, that's a good one.
00:25:27.440 --> 00:25:27.839
That's cool.
00:25:27.920 --> 00:25:30.480
I mean, that's 15% could be in a lot of scenarios.
00:25:30.720 --> 00:25:33.680
You know, that's uh that I like that.
00:25:34.000 --> 00:25:34.319
Okay.
00:25:34.480 --> 00:25:34.640
Okay.
00:25:34.720 --> 00:25:39.759
Now, if we're sticking with kind of the metaphors, let's say if there's the fight going on, we're getting into the fourth round.
00:25:39.839 --> 00:25:40.559
We're kind of tired.
00:25:40.640 --> 00:25:43.599
So what do they they start hugging to rest a little, you know?
00:25:43.680 --> 00:25:43.839
Yeah.
00:25:44.079 --> 00:25:46.079
So we're both kind of in that mode right now.
00:25:46.319 --> 00:25:48.400
I want to point this out to remind everybody.
00:25:48.640 --> 00:25:53.920
Both accounts again, you can self-direct, you can invest in whatever the hell you want.
00:25:54.160 --> 00:25:56.480
So kind of, you know, bro hug there.
00:25:56.799 --> 00:25:58.559
Yeah, Roger, I see where you're going.
00:25:59.839 --> 00:26:02.640
The Robin HR say, hey, we can we can agree on that.
00:26:02.799 --> 00:26:03.519
Let's take a break.
00:26:03.680 --> 00:26:04.160
Yeah.
00:26:04.400 --> 00:26:05.119
You know what?
00:26:05.200 --> 00:26:10.480
And I think that that's there's let's let's have some common things they actually do have in common.
00:26:10.559 --> 00:26:16.079
And I think that's that's one where there's there's unity, you know, in that we can invest it and grow it.
00:26:16.160 --> 00:26:21.519
And and the IRS has said, go use that account, make money in it, invest it, grow it.
00:26:21.680 --> 00:26:28.160
You don't have to pay us any taxes on it now or when you pull the money out later at retirement for the Roth or for medical for the HSA.
00:26:28.559 --> 00:26:33.519
And and your options could be stocks, it could be ETFs, it could be mutual funds.
00:26:33.599 --> 00:26:34.799
That's what most people think about.
00:26:34.880 --> 00:26:38.400
And that's if you're having it at a brokerage IRA or HSA.
00:26:38.880 --> 00:26:46.079
But we do self-directed IRAs, Roth IRAs, HSAs at directed IRA, where you could buy that stuff if you want.
00:26:46.160 --> 00:26:51.279
But most people use us because they want to buy real estate, invest in crypto, a private company.
00:26:51.519 --> 00:26:53.440
These are all things your IRA can buy.
00:26:53.519 --> 00:26:56.640
Like we're talking about when we say real estate, like the duplex down the street.
00:26:56.799 --> 00:26:58.480
So that's what this podcast is all about.
00:26:58.559 --> 00:27:00.880
The directed IRA podcast is how spoiler alert.
00:27:01.279 --> 00:27:01.359
Yeah.
00:27:02.000 --> 00:27:08.000
If you're new here and we caught you on this episode, um, but you're using these tax advantage accounts to do it.
00:27:08.160 --> 00:27:11.440
And Wall Street's just told you no, invest in this stuff.
00:27:11.519 --> 00:27:12.000
It's easy.
00:27:12.079 --> 00:27:13.119
We got it on the shelf here.
00:27:13.279 --> 00:27:15.200
You type in a ticker, it's in your account.
00:27:15.440 --> 00:27:16.880
They don't like all this other stuff.
00:27:16.960 --> 00:27:18.720
It's more of a pain in the butt for them to do.
00:27:19.039 --> 00:27:21.039
We love it because we're entrepreneurial.
00:27:21.200 --> 00:27:23.039
We've been doing it with our own accounts for years.
00:27:23.200 --> 00:27:25.200
Mark's bought cows in his HSA.
00:27:25.599 --> 00:27:27.119
We've both bought crypto.
00:27:27.279 --> 00:27:28.480
I bought rental properties.
00:27:28.559 --> 00:27:30.720
We both bought rental properties, private lending.
00:27:30.799 --> 00:27:37.759
I've invested in startups and private funds, all these with our retirement accounts, which most people are like, I didn't even know you could do that.
00:27:37.839 --> 00:27:38.000
Yeah.
00:27:38.240 --> 00:27:38.960
Yes, you can.
00:27:39.039 --> 00:27:40.960
And you could use either one of these accounts to do it.
00:27:41.359 --> 00:27:42.400
And Mark and I have done it.
00:27:42.640 --> 00:27:42.799
Yep.
00:27:43.359 --> 00:27:47.599
In fact, I talked to Chris Albin last week, my little meth lab rental in my HSA.
00:27:47.839 --> 00:27:48.079
Yes.
00:27:48.240 --> 00:27:49.359
Did I say that out loud?
00:27:49.519 --> 00:27:51.920
Um, it is uh many of you that are regular listeners.
00:27:52.240 --> 00:27:54.960
You don't know for sure where the cash rent's coming from.
00:27:55.119 --> 00:27:59.119
They're great guys, lots of bling, but it's cash, it's got rubber bands on it.
00:27:59.920 --> 00:28:02.000
So I don't know where the rent's coming from.
00:28:02.079 --> 00:28:02.480
Yeah.
00:28:03.200 --> 00:28:03.920
But it's in my HSA.
00:28:04.240 --> 00:28:04.720
Regular rent.
00:28:04.799 --> 00:28:05.839
You know, we just leave it at that.
00:28:06.079 --> 00:28:14.960
No, but it's in so uh Chris is my property manager out in um Elgin, uh outside Chicago, and he's uh found a buyer, so I'm selling that.
00:28:15.039 --> 00:28:17.599
Yes, and take that cash and invest it in the range.
00:28:18.319 --> 00:28:24.319
By the way, so the rent was going into the HSA, the gains going back in the HSA, no tax, growing and building the account.
00:28:24.640 --> 00:28:25.279
Tax-free.
00:28:25.359 --> 00:28:25.920
There you go.
00:28:26.240 --> 00:28:32.319
So, all right, I'm gonna I'm gonna bring us home here and say, we're going to the cards, we're going to the judges.
00:28:32.640 --> 00:28:36.640
Wasn't a clear winner here, and I'm gonna tell you who I think wins.
00:28:37.039 --> 00:28:38.319
It's a draw.
00:28:38.640 --> 00:28:42.720
And my admonition for all of you is do both.
00:28:42.960 --> 00:28:52.799
If you can figure it out with your health insurance plan, if you can figure it out with your earned income and you get the right accountant involved, both of these strategies are freaking amazing.
00:28:53.039 --> 00:28:54.160
I think it's a draw.
00:28:54.319 --> 00:28:54.880
I don't know.
00:28:55.039 --> 00:28:56.799
Yeah, I do both myself.
00:28:56.960 --> 00:28:57.359
Yeah.
00:28:57.599 --> 00:28:59.279
So I'm doing the backdoor Roth.
00:28:59.440 --> 00:29:04.400
I've done the HSA many years, I've floated between years where I do hide it up the ornot.
00:29:04.559 --> 00:29:07.759
And so, um, but I'm a huge fan of both.
00:29:07.920 --> 00:29:12.799
And and both of them have the commonality of tax-free, these are tax advantage accounts.
00:29:12.960 --> 00:29:15.440
You can be in control of investing in it.
00:29:15.599 --> 00:29:20.319
Um, so we want to make sure everybody understand the the differences though between the two, because they are different.
00:29:20.480 --> 00:29:21.920
Yeah, but they're both great.
00:29:22.079 --> 00:29:23.440
Yeah, and they're both winners.
00:29:23.599 --> 00:29:31.279
And see, and when someone says, Well, I'm limited, I can only put$7,500 a year in my HS in my Roth IRA.
00:29:31.440 --> 00:29:32.240
Well, are you married?
00:29:32.400 --> 00:29:33.039
Double down.
00:29:33.200 --> 00:29:33.920
What's your age?
00:29:34.079 --> 00:29:35.119
Maybe a little bit more.
00:29:35.359 --> 00:29:36.720
Have you even thought about the HS?
00:29:36.799 --> 00:29:38.000
Oh my gosh, I could do the HSA.
00:29:38.319 --> 00:29:41.680
Gosh, if you're a married couple, let's do, I mean how to add this up.
00:29:41.839 --> 00:29:55.920
If I'm a married couple and I do both the Roth IRA, and I'm over age 50, 55, and I do the HSA, we're at 10, we're over 1007 plus the 17.
00:29:56.559 --> 00:29:59.680
Yeah, you're you're almost 25 to 30 grand.
00:30:00.000 --> 00:30:00.160
Yeah.
00:30:00.319 --> 00:30:00.559
A year.
00:30:01.119 --> 00:30:01.759
Around 28.
00:30:01.839 --> 00:30:02.079
Yeah.
00:30:02.240 --> 00:30:04.000
So you're putting away 28 grand.
00:30:04.559 --> 00:30:12.079
Almost half of that, which is a tax write-off, and then it's growing tax-free, and you've got different buckets, you've got different ATMs going on.
00:30:12.160 --> 00:30:13.200
You're being strategic.
00:30:13.279 --> 00:30:15.119
You're like, you're in the ring.
00:30:15.359 --> 00:30:21.599
Yeah, and this is where you, when you're gonna hit 65, the most normal retirement age, when you can at least get Medicare, right?
00:30:21.759 --> 00:30:30.480
You can think about these buckets and like the safety and like the peace of mind you get of knowing these buckets of money you get to draw on is massive.
00:30:30.640 --> 00:30:34.160
And the government incentivized you to grow and build wealth that way.
00:30:34.240 --> 00:30:43.519
Your money will compound faster in these accounts than they will in just a brokerage account or some taxable account where you've got to pay the IRS and they eat into your gains every year.
00:30:43.680 --> 00:30:45.839
So we're huge proponents of it.
00:30:45.920 --> 00:30:50.400
We think it gets you to your retirement goals faster and it'll make your money last longer as well.
00:30:50.559 --> 00:30:50.799
Yeah.
00:30:50.960 --> 00:30:52.480
Well, fair fight.
00:30:52.640 --> 00:30:53.359
All right, fair fight.
00:30:53.519 --> 00:30:54.480
Yeah, we'll both champs.
00:30:54.640 --> 00:30:57.359
It was just where we we we uh bump the gloves.
00:30:57.599 --> 00:30:57.680
Yeah.
00:30:58.160 --> 00:31:00.480
So thanks everybody for uh listening today.
00:31:00.559 --> 00:31:06.720
Hopefully that was uh entertaining to I mean, you can't make this any stretch.
00:31:06.880 --> 00:31:07.680
We're trying here, folks.
00:31:07.839 --> 00:31:08.480
Thanks for listening.
00:31:08.640 --> 00:31:16.640
Please give us five stars, two thumbs up, share it with your friends or family, and we hope to see you on a regular basis here on the Directed IRA podcast.
00:31:16.799 --> 00:31:17.680
See you next time.
00:31:17.920 --> 00:31:19.440
And thank you everyone for listening.
00:31:19.599 --> 00:31:34.559
A quick disclaimer and reminder this presentation does not constitute an attorney or CPA client relationship, and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions.
00:31:34.799 --> 00:31:39.039
We also want to make sure you know this is not investment advice or financial advice.
00:31:39.119 --> 00:31:45.279
We're just trying to give you education, ideas, and strategies you can take to your professionals or conduct your own research on.
00:31:45.599 --> 00:31:46.960
We'll see you next time.