Brought to you by the EveryDollar app. Start budgeting for free today. This contributing to your HSA count towards your 15% investing. I built up quite a bit in my HSA and I'm thinking about investing within it.
And how do you know what funds to pick? I would not use my HSA towards the 15% because your HSA can only be used for medical. If you use it for anything else, it's taxable and penalized. And I would, until you're 65 and after you're 65, you can do it with roll on it like you can on anything else.
So an HSA is a health savings account that is tax deductible and can be used for medical. Okay? And meaning that the government's paying part of your medical. If you do that, it's tied to a low cost health insurance plan because it's a high deductible health insurance plan and you cover the deductible with the HSA.
It is not an investment vehicle by choice. You should use investing vehicles in your 15% meaning mutual funds in your 401k, Roth IRA and those kinds of things. Having said that, I'll answer the rest of your question. Once you get to baby step seven and your house is paid off and you're maxing out things left and right, then you can use your HSA as an investing vehicle and I have.
George W put the first HSA's in place and the day they were put in place, I bought the first one because I love the concept. Is that how new they are? I don't know why they're that new. Yeah, that's not that new.
That's 20 years ago, but for presidents ago. But anyway, but anyway, yeah, for a long time, I've been doing all they would allow me to do in the HSA and knock on wood. The Ramses have been pretty healthy and I haven't had to use it. And so it has turned into an investment vehicle.
And then when you get to baby step seven, like I have, and I max out 401Ks and I max out back door Roth IRA's and I max out every single thing I can do to keep the government's stinking hands off my money, then I'm also gonna max out an HSA as an investment. I'll never use it for medical. I mean, highly unlikely, I'll use it for medical. I'm already 64, I can start withdrawing it next year for any reason, medical or otherwise, at 65 if I want to.
So I'm using it as an, and now I've got like, I don't know, there's $500, $500 in a stupid thing. Just cause I've chunked money in it for all these years and we moved it into mutual funds. And you can use a company like Health Equity as what we use and we move the money into mutual funds inside the HSA. But you should not be doing that until you get to baby step seven and you've maxed out regular retirement plans first and you got your house paid off first.
Then you would do stuff like this. This is like when you've done everything you can do. What's the last thing you can do? This, but you get your stage.
No, you need to be doing 15%, 15% into good retirement is all like regular 401Ks and Roth IRA's. Yeah, and I think the HSA question is, I think it's a great question, Kate. I'm glad that she submitted it because I feel like we are hearing. Yeah, I don't know more questions around it because I think I don't think some people realize that it can even be an investment vehicle eventually.
That's even an option. Yeah, and here's the thing. Everybody's always looking for these little nuanced hacks, this life hack, this investing hack that's gonna make the big difference. The big difference is do the main stuff steady and do the nuanced stuff as icing on the cake.
Okay, here's another example of that, all right? Neuance things. People talk about like it's some kind of big breakthrough thing and I see it sometimes with overhyped and some weirdo on TikTok or something. But here's what happens, okay?
Rachel, 12 year old Rachel, is working the back book table at a live event selling kids books and helping us load the truck and worked hard and got paid. And didn't have the option, but I'm having a. We send them to the shop, we send them to the salt mines. So poor little child abused children.
So anyway, that's what set her up for her success. Anyway, so she gets paid and then she's babysitting some, 12, 13, 14 years old baby. And I added up the amount of money that she actually made and filed a tax return. One year I think it was a whole $1,700 or something.
Teenage income filed a tax return. I paid what little tax there was due if any on $1,700. But that enables her to have an earned income at 12 or 13 years old. And we did a Roth IRA and you can put up to your earned income.
So that year I dumped 1,700 bucks into Rachel's Roth IRA. We did that again at 14, 15, 16, 17, 18. She didn't put any of the money she earned in that. I took $1,700 of my money and did a little Roth IRA for her.
But you do that four, five, six times and then they're 21 or 22 years old and they come out of school and they'll look down and they'll be $100,000 for a 1K. And if you're 22 and you have $100,000, you know what that is when you're 42? Hello. But that doesn't make you rich if you do everything else stupid.
So that's a little nuanced trick. Like the HSA is a little nuanced trick. It's icing on the cake. It is not the cake.
And you don't need icing if you got no cake. So I mean, you need to do the middle stuff, the big stuff, right? And not try to replace the big stuff with all these little tick-tack, hot hacks that are out there. I have a life hack.
Oh, you're killing me. Just do the life hack. The newest or not the newest one, the one I just saw recently is using life insurance while you're alive. Oh God.
Explain that one. That's a good one. That's a thing. That it's like, oh my gosh, I don't have to work.
Is that the stupid whole life thing? And it ends up being a whole life insurance. It's not the thing. Honestly, I didn't really understand.
I was watching. I'm trying to figure out where he was going with it. But I think it ended up being a whole life whole thing because he had a product he was selling. Well, there's another product that, of course, you can.
He's saying, like, if you're terminally ill, you can sell your death. No, no, no, no, no. This is actually pulling out of it. Oh, that's a cash value book rep.
That's more tick-tack. But it's bad. But it's bad. Financial products that we, it's like a disease.
We in the financial world thought we had a knock at vaccinated everyone against the disease. And then tick-tack comes back and spreads the disease again. We almost had it done. It was almost dead.
And then some little fart revives the thing on tick-tack. And also, whole life is now a big. Not everyone in the financial world, those whole life sucks. And then this little guy, god, a mighty.
OK, so let's go positive because we only have like two minutes left. So don't have to worry. OK, it's the thing. So that's OK.
So that's a good question. Kids, let's go in that direction because you went there with the Roth IRA kids. A lot of people ask, OK, what can I do besides saving for my kids' college? What can I do to set them up?
Is it up, is it mutual funds? Is it? That's an example. Kids' college is a cake.
Icing, Roth IRA with a babysitting money. OK, don't do that. And say, well, I'm not doing kids' college because I'm doing the icing. No, do the cake.
Have money so your kid can gain knowledge. Here's another one. Don't make it mad real quick. Don't pay for your kids' college, but get a house.
Have them pay you rent. So that way, when they graduate, they may have student loans, but they'll have a house with more equity. Everybody's trying to double back flips instead of actually just doing their work. Yeah, you're right.
That does make them mad. It's just dumb. It's just dumb. Do the icing.
This is the Ramsey Show. Create your free every dollar budget today, the simplest way to budget for your life.