An HSA, the “Other Retirement Account”

The following program was prerecorded, so our phone lines are not open. A health savings account can save you a lot of money now and give you a healthier retirement income later. Hi, I'm Rob West.

Health savings accounts were designed to help folks struggling with out-of-pocket medical expenses, but a key provision makes them a terrific backup retirement account, too. I'll talk about that with Mark Biller today, and then we have some great questions lined up for you. But don't call in today, because we're prerecorded. This is Faith and Finance Live, biblical wisdom for your financial decisions. Well, our good friend Mark Biller is the executive editor at Sound Mind Investing, and Mark, it's always great to have you on the program. Thanks, Rob.

Good to be back. Mark, we mentioned the benefits of health savings accounts, HSAs, from time to time on the program, but today we'll dive specifically into the connection they can have to retirement investing, which a lot of folks may not be aware of, right? Yeah, that's right, Rob. You know, when you think about saving for retirement, you probably think about your workplace retirement plan or an IRA. But a health savings account can also be a powerful retirement savings tool, at least for some people. And in fact, in certain situations, an HSA can basically be thought of as a super IRA, but we're starting to get a little bit ahead of ourselves. Well, that's right.

So let's maybe back up for a moment. And maybe you can provide a bit of background on HSAs. Yeah, well, first of all, to be eligible to fund an HSA, you have to have a high deductible health insurance plan, whether that plan comes from your employer or it's purchased directly by you. And this year, that means an individual plan with at least a $1,500 deductible, or a family plan with at least a $3,000 deductible. Now basically, Rob, if you've got a high deductible plan like that, you're basically self-insuring for your routine and any relatively minor medical expenses. So the government lets you contribute to a health savings account, so you've got money on hand to pay those relatively small expenses. And then the insurance component covers you against anything major. So your HSA money can be used to cover your deductible co-pays, lots of other health care products and services, they are limited as to how much you can put in them.

So for example, this year, the maximum contribution an individual can make is $3,850, or a family maximum is $7,750. And there are catch up contributions for older people just like IRAs. So did you get all that? I think so.

There was a lot there. Actually, it does sound very similar to an IRA. Yeah, exactly. And there are similar tax benefits available as well, except in the case of HSAs, the tax treatment is potentially even a little bit better than IRAs, because they're what we call triple tax advantage. In other words, you don't pay taxes putting the money in, you don't have taxes on the account growth. And then you don't pay taxes if the money is withdrawn to pay for what are called qualified health expenses.

And that's why I was mentioning the super IRA idea, because regular IRAs and other workplace retirement plans like your 401k, those are only double tax advantage, meaning that you're always going to pay taxes at one end or the other with IRAs, either when you're putting the money in or when the money is coming out, depending on whether you're using a traditional IRA or a Roth. But HSAs actually get that tax benefit on both sides, which is why they're unique and why we're touting them as as a good retirement savings vehicle. Yeah, and it's that triple tax advantage that makes HSA a potentially powerful tool for retirement investing, right?

Yeah, absolutely. And the big key with this is whether a person can cover those out of pocket medical costs with funds from outside their HSA account. If a person can do that, then that money that accumulates in their HSA gets that triple benefit as they invested over the years.

So a couple important notes here. One, if you're not sure that you can pay all your health expenses from outside the HSA, there's really no downside for trying. You know, for example, if you decide to save the maximum in your HSA, but then you end up having to dip into it to pay for your ongoing health costs, you've still got some of that money sitting in the very best type of account for long term investing. And then there's a second point that we can delve into on the other side of the break.

Sounds great. Mark Biller with us today, executive editor at Soundmind Investing. We're talking about their article, a health savings account, the other retirement account at soundmindinvesting.org. Much more to come just around the corner. Stick around. Thanks for joining us on Faith and Finance Live.

I'm Rob West. With me today, Mark Biller, executive editor at Soundmind Investing. Today we're talking about HSAs, specifically a recent article at soundmindinvesting.org entitled A Health Savings Account, The Other Retirement Account. Perhaps you haven't thought about your HSA as not only a way to cover the cost of healthcare expenses, but also to save for retirement. Mark, just before the break, you were saying one of the keys to this is being able to perhaps try to cover your expenses outside the HSA so you can let this money grow. Now, if you're unable to do that, and you have to dip in, that's fine. But there's also this idea of whether or not the custodian allows you access to investments, right?

Yeah, that's exactly right. And unfortunately, not all HSA platforms really have good investing options on them. But a number of them do. Some of them are set up directly with Fidelity, for example. So you have a full range of investing options there. There are others like Lively is another popular HSA provider. And that platform gives you access to all of Schwab's trading abilities. So a lot of these plans do offer you good investing options, which of course is more important if you're trying to use the HSA in this kind of long term retirement savings capability.

Yeah. Now, you shared with us that the real power of these HSAs is that they're triple tax advantaged. No taxes going in, no taxes on account growth, and no taxes if the money is withdrawn to pay qualified health expenses. But one of the stipulations of that triple advantage is that the HSA money has to ultimately be used for in fact, those qualified medical expenses.

So talk to us about that. Yeah, that's correct. And Rob, if if you do end up in retirement with money in an HSA, and you need to take it out for non medical expenses, at worst, it ends up functioning just like a regular IRA where you end up paying tax on those withdrawals. But there's actually an important loophole that's really important for people who are wanting to use HSAs in the way that we're talking about today. And that is that in retirement, you can take money out of the HSA for any new qualified health expenses that you incur.

That's true all the way through your life. But the loophole is in retirement, you can also reimburse yourself for for past qualified health care expenses that you incurred in the past. So that means as long as you save your receipts for health care expenses that you're paying out of pocket now, you'll have the ability to take those amounts out of your HSA in retirement, whether you have new health care expenses or not.

So let me give you an example of that. Yeah, suppose at age 66, you're retired and you withdraw $15,000 from your HSA to buy a car or any other non health expense. Okay, as long as you have $15,000 in receipts that you haven't used, you haven't claimed in the past, then even if you incurred those expenses years earlier, you can use those receipts to offset that entire withdrawal, making it tax free. Wow, that is a powerful benefit. And this is where HSAs are different from FSAs flexible spending accounts, right?

Absolutely. So HSA account balances can be carried forward year after year, and you can get that compounding in your investing account. That's very different from a flexible spending account where the money has to be spent each year, or else you forfeit it. And it's also worth pointing out that once you enroll in Medicare, which most people do at age 65, yeah, you have to stop contributing to an HSA. But any existing HSA money that you have can continue to be invested and can continue to pay these qualified health care expenses. You know, that makes me think of a program we did recently, Mark on the order of operations when we're managing money, I suppose in this case, getting things in the right order is really important, right?

Yeah, it really is. And SMI is always recommended prioritizing those retirement savings this way. If your workplace plan offers a match contribute there to get the full match, then we usually suggest going over to an IRA because they usually have the broadest set of investment options. And then if you still need to save more for retirement, you would ultimately go back to your 401k plan last. Now if your workplace plan doesn't offer a match, then we would just say max out an IRA and then turn to your workplace plan. But because these HSA benefits are so compelling, if you're eligible to fund an HSA, and you think that you're going to be able to pay at least some of those health care expenses outside the HSA, so that it can grow over time, then we would change those recommendations a little bit, we would say in that case, you still want to go for your matching contributions in your workplace plan. But then we would say the HSA should probably come next, before you move on to funding an IRA. Now, if your workplace plan doesn't offer a match, we'd actually suggest maxing out the HSA first, then moving on to an IRA. And finally back to your workplace plan.

Yeah, that's really helpful. And there are a lot of moving parts. So by the way, folks, if you want to check out this article with all the details, again, it's called a health savings account, the other retirement account, you'll find it as a free download at sound mind investing.org. Mark, this makes me think of the fact that health care costs in retirement are always a major concern for folks.

Medicare, of course, doesn't cover everything. So give us an idea of how contributing to an HSA can really alleviate some of those fears. Yeah, well, in the article, Rob, we include a quote from a research firm that found that an individual who starts saving by age 40 can accumulate sufficient savings in an HSA to cover the cost of health care in retirement. And importantly, those researchers said that that projection would still hold even if the individual had to use a small portion of that HSA money to cover their current health expenses. So the bottom line of all of that is this is definitely a tool that's worth looking into, if you're covered by a high deductible insurance plan, because it can really put you on a good path for retirement savings. And then quickly, Mark, for somebody who has a choice HSA or not, are there some rules of thumb, perhaps that would help them decide whether this is the best option for them? Well, you always do have to look at the the costs of the plan that you're getting. And all I know with any insurance, there are always going to be specific details in terms of those deductibles and so forth, you certainly don't want to put yourself in a position where you can't cover your own health care up to those high deductibles. So safety first when it comes to insurance, but this can be a good tool for a lot of people. But I suspect somebody who's younger, healthy and has the ability to max it out would be right for an HSA, correct? Absolutely. Because young people are often overpaying for insurance that they don't end up using and really likely are not going to need.

So this is a perfect model for those folks as long as they have emergency savings to cover if they do need to pay out of pocket up to that deductible amount. That's really helpful. Mark, great information. As always, we really appreciate you dropping by today. Always my pleasure, Rob. He's Mark Biller, executive editor at Soundmind Investing.

You can read more about this in their article, A Health Savings Account, the other retirement account at soundmindinvesting.org. All right, we're going to head to a break. So don't go anywhere. Still a lot more to come as we continue to apply God's wisdom to your financial decisions. We'll be right back. Thanks so much for joining us today on Faith & Finance Live. I'm Rob West, your host. Hey, our team is away from the studios today, so don't call in. But we lined up some great questions.

We'll get right back to the phones here in just a moment. Folks, have you checked out recently our website at faithfi.com? If not, I'd encourage you to do that. You'll find our community there where you can post questions and comments, hear from others that are on the stewardship journey as well. You can also access our content and check out the FaithFi app.

It's at faithfi.com. Now let's head back to the phone calls we have lined up. To Georgia. Josh, go ahead. Good morning, Mr. West. How are you? I'm well, sir.

Thank you. Okay. There's a fight coming over about the debt ceiling between Congress and, you know, the White House. Yes, sir. If there is no agreement reached, we'll have to get back to the White House. Yes, sir.

If there is no agreement reached, and they decide to default on the debt, can you please tell me what will happen? And I will hang up and listen to your response. Thank you. Yeah, thanks, Joshua.

I appreciate that. You know, we go through this every couple of years, and it's mainly political jockeying and rhetoric. And ultimately, they always increase it.

So I wouldn't think that it's really likely at all for there to be a true default. We've seen examples of this around the world, what happens when there is a liquidity crisis or a debt crisis, and it's not good. And so it will result in them increasing it. However, what is the longer term solution? And the challenge is that I think here where we sit at about 130% of gross domestic product, where national debt is, we're finally to the point, and we've not been at this place since World War Two, we're now to the point where a potential debt crisis, not imminently, but good bit down the road is plausible. And so we've got to rein in spending, we've got to stop, you know, with just an easy money supply, injecting money into our system to cover budget deficits, which can lead to runaway inflation. And we're certainly experiencing part of that right now, just because of our easy money policies that went on during the pandemic.

And prior to that, for a considerable amount of time. And as that national debt grows, especially with higher interest rates, which makes the debt service a lot more expensive, it becomes a real challenge. And so we've got to get on top of this. And that's going to happen with policy changes, which means you've got to show up at the ballot box and vote for folks who are going to legislate around a sound money philosophy of reigning spending and having fiscal restraint as a nation. Because what we recognize is that these biblical principles that we talk about here from God's Word related to money management apply to God's people, they also apply to nations. And God has a design for economies that starts with the value of human life and recognizing we were created to be workers and to be productive and to take God's creation and order it and divide it and improve it. And in that virtuous cycle of work and productivity creates economic expansion, which is a virtuous cycle. So then we can give and give back to the creator that allowed it that, you know, it all to happen in the first place.

And, you know, in that comes expansion, but that's not through artificial manipulation of interest rates or an easy money policy that just involves lots of printing presses physically or digitally creating a lot more money. And so we've got to be careful. I think we need to take this seriously as a nation. And I think, you know, we're in good shape right now. We can handle the debt that we have.

The question is, where are we headed and what are we going to do in the decades that follow? So what would I do based on everything that I've just said and we're talking about here right now, I would realize that my own personal economy is what I can control. And so I should be living within my means and avoiding debt and setting long term goals and having margin. And above all of that, I'd be giving generously to demonstrate to God that his economy is ultimately the real economy. His provision is more complete than my own.

And he is my provider. I would handle his money according to biblical wisdom. And I'd pray and I'd show up and I'd vote and make your opinion known around who needs to be leading this country and what decisions they need to be making regarding being fiscally responsible. I would also say that the U.S. is in pretty good shape, according to the rest of the world, if we're grading on a curve, you know, in terms of our strength and size and the state of the American consumer today. Again, we can't let this debt continue to skyrocket.

We will have challenges down the road if we do. But I still believe the very best way for you to overcome the effects of inflation is to have a long term, properly diversified investment strategy where you're systematically investing in high quality stocks and bonds here in the United States and even internationally. That gives you the very best prospect to grow God's money and overcome the effects of inflation. Could that, you know, could a debt crisis be coming down the road? Yes. But do I see a collapse of the banking system or, you know, anything like that?

No, I don't. I think we still, again, are in a very strong position despite our challenges and we should be long term, diversified investors and making wise decisions with God's money. There's a lot of godly and very astute economists and theologians that will continue to watch this and analyze it as we go. And I think we, again, just need to be faithful in what God has entrusted to us. But I appreciate you asking the question, Joshua. Thanks for calling.

Let's head to Louisiana. Hey, John, thanks for calling. Go ahead. Hey, thanks for taking my call. I love your show.

I listen almost every day. Well, thank you. I had a question. I have a son that's living at home with us. He's for the last year and a half. He graduated in physical therapy and he got his doctorate, but he accumulated some debt to save some money. He's he's got about one hundred and ten thousand and student loan. And my question is, he saved about sixty thousand dollars. And I'm wondering how to advise him.

Exactly. What would you how much of that would you use toward this graduate loan? And he owns a truck, but that's about it. And hadn't hadn't gotten his first house.

Didn't know whether we should rent or save money for a down payment on the house. Just get some advice from you from that. Yeah, very good. Well, John, thanks for your kind remarks about the program. And it sounds like your son is off to a good start here. I understand he's got a lot of debt and that's weighing on him. Good news is hopefully with this post undergraduate degree and the field that he's pursuing, hopefully I have a good base of income and a marketable skill set that he can bring in some funds that will help him pay this off in a reasonable period of time. He's obviously demonstrating financial restraint and maturity just by virtue of the fact that he's saved sixty thousand dollars.

So that's incredible. I think the key here is number one, yes, we should prioritize eradicating that debt and now is a great opportunity to really get a good jumpstart on that while his expenses are low. And I believe you said he's living with you guys, which means at least for this season, while he's working, he should be able to continue to save and we should prioritize the student loan debt.

But we also need to balance that with other priorities because this isn't going away any time soon. And so I think one approach to that would be to say, what is a reasonable time period that he should think about having this debt completely paid off? Now, if he has a conviction from the Lord that I just need to be out of debt as soon as possible, then go for it.

Don't look back. Otherwise, I might say, what does it look like to set a ten year target to have this completely gone this hundred and ten thousand dollars in ten years? And what would I need to send every month to do that, even if I make a significant jumpstart on that today and then look at the other goals that he has? Maybe start by funding the Roth IRA this year and each year following.

Put an emergency fund aside and then also start saving for that house. I think those are all great priorities and we can do them all at the same time. Hey, we're going to pause for a brief break. We'll be back with much more. Stay with us. Delighted to have you with us today on Faith and Finance Live. We're not here today. Our team is away from the studio. This is prerecorded, so don't call in. But we've got some great questions we lined up in advance. Before we go to the phones, let me remind you, Faith Phi and Faith and Finance Live is listener supported. You'd like to be a financial partner, you can do that at faithphi.com. Just click give.

Thanks in advance. All right, let's head to the phones. Just before the break, we were talking to John from Louisiana. He's got a twenty nine year old son. He's got some student loan debt, about one hundred and ten thousand. He's been saving. He's actually built up about sixty thousand in debt. And John was wondering how he should balance his competing priorities of paying down this debt perhaps buying a home sometime soon and wondering whether he should make that a goal in the near term. And also any additional thoughts around continuing to save and allocate his resources. And John, as I was sharing before the break, I think one approach would be to say, all right, let's get started on that debt, but let's create a reasonable time period to pay it back. Let's say ten years at the most. And what would it take every month starting right now to get that paid off in that time period? That then allows me to take the sixty thousand and say, OK, what's the best use of this? Number one is that three to six months expenses for an emergency fund. Number two is what if I as long as he has earned income, you know, fully fund a Roth IRA this year at sixty five hundred.

And then beyond that, he could start saving toward other goals, potentially a home purchase. But give me your thoughts on that. Yes. Yeah, Rob, that sounds that sounds reasonable after listening to you for a long time.

I kind of had those notes, but I wanted to be sure. And also, I wanted to ask you a question. I've heard you tell people recently due to the increase in interest rates and whatnot and home prices that may be a first time home buyer. He's looking at moving away from us and moving to another town. And I want to advise him on whether to rent or to possibly buy a house.

What were your thoughts on that? Yeah, I'd probably rent. And here's why. Number one is he's moving to a new area. And so often it takes a little while to figure out exactly where you want to live and especially if he doesn't have his job yet. But even if he does, he may opt for one part of town over another.

So he'd have some time to kind of work through that. Maybe just gets a short term six month lease. The other thing is, I think we're going to see the housing prices continue to pull back. National averages are around five to six percent down. Could be more if we get into a more severe recession. And I think we'll see interest rates, mortgage rates backing off as we get closer to the end of the year. So I think he might be in a better position given that he's not selling anything where he can pull some good appreciation out. He's starting into a first time home. I think he'd be well served by waiting for those reasons. Now, if he got there and he just found that perfect thing that's in the right area and it fits his budget and he wants to go for it, I don't think that's a terrible idea.

But just given some of those uncertainties, I'd probably delay. All right. Thank you so much, Rob. God bless you. Thank you for your ministry. Thank you, John. I appreciate that, my friend.

God bless you as well. Eight hundred five to five. Seven thousand is the number to call. Let's head to Arkansas. Hi, Dale.

Thanks for calling. Go ahead, sir. Oh, excuse me. I didn't mean to say, sir, go right ahead.

How can I help you? We have some funds in the savings account. And of course, we're making nothing. And we were looking at something to do with them, you know, to earn money.

But you still stay within what the Lord would want us to do. Yes. Yeah. So, Dale, what do you have? What is the balance of the savings right now?

It's a little over one hundred and fifty. OK. And is this separate from your retirement savings? Yes. OK. And do you feel like you're on track with your retirement savings and whatever you're putting away in 401Ks or whatever other vehicles you have?

Yes, sir. OK, good. And then do you also have an emergency fund separate from this or would this be would that be included in this one hundred and fifty? No, that would not be included.

OK, so this is completely separate. It's not for retirement. It's not your emergency fund. It really is just surplus. Do you have any other goals that you've thought about earmarking this for? Are you looking to replace an automobile in the next couple of years? I mean, is there anything else that this hundred and fifty might need to be allocated toward? No, sir.

OK. All right. Well, you know, I think then the next question is really just trying to assign a time horizon to it, because if it is truly surplus, it's not your emergency fund, it's not going to be for some short term kind of major purchase down payment on a house or, you know, paying down debt or replacing a car. It's not for retirement and you feel like you're on track with what you're saving for the long term. Then we have the ability to be a little more flexible and you can decide kind of where you want to land on the risk spectrum.

Are you thinking, Dale, that you might be interested in investing this in stocks and bonds, even though you have the potential for loss in order to get a greater return? Or would you like to keep it more secure? I think I'd like to keep it more secure. All right.

Yeah. So I think then we look at what instruments can we use to protect this money, but also grow it at a reasonable rate. I mean, we we start typically in that category with banking products. And so you'd keep it in cash and cash equivalents like a high yield savings account. So at a minimum, I'd move it to an online bank where you can that's FDIC insured, where you're getting three and a half percent interest, which is available right now. So, you know, 150,000, that would throw off about $5,000 a year. So I do that at a minimum, then you'd have the backing of the Federal Deposit Insurance Corporation. Beyond that, you could bump that up a little bit with CDs. So you might get a CD right now for, you know, a year or 15 months at 4.5, 4.6%.

And so now all of a sudden, that 150,000 is generating about $7,000 over the next 12 months. Beyond that, if you wanted to keep the safety, so you don't want to take the risk of principal loss, but you want to grow it, you know, and you want some tax favored growth, you could look at an insurance product like an annuity. Now those typically aren't my first choice, just because they're complicated, they're expensive, you usually give up some of the upside in exchange for downside protection.

But that may be what you're looking for. You may say I'm willing to give up some upside because I want to protect, I want to floor on the downside so I don't lose anything. But if that was the case, you might want to look at an insurance product. So I think those are really your options at this point. If you don't want to put this at the risk of the market. Otherwise, I'd probably find an advisor who can work with you to manage this money in a stock and bond portfolio.

But you have to recognize, although the upside is better, you absolutely could lose money. Hopefully that's helpful to you, Dale. Thanks for calling today.

God bless you. We'll be right back. Thrilled to have you with us today on faith and finance live. By the way, we're not here today.

Our team is away from the studio, so don't call in, but we have lined up some wonderful questions that I know you'll enjoy that we'll get to in just a bit. Hey, have you checked out the new faith fi website? You'll find it at faith fi.com. While you're there, be sure to check out the faith fi app. It might be just what you're looking for as you get your spending plan set up this year, trying to set up your envelope system digitally speaking, connect to your bank accounts, automatically download your transactions.

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Be sure to check it out. All right, let's head back to the phones. Joan in Georgia. Joan, go ahead.

How can I help? Yes, I was concerned about the digital money that Biden is trying to get. Have you heard anything about that? Yeah, the digital currency. He initiated a research report that has come out recently evaluating the creation of what they call a CBDC, a central bank digital currency. And they developed a framework on the responsible development of digital assets.

It was an executive order. And it was intended to start the process to outline the government's approach to digital assets. And it has several government agencies to come up with policy recommendations, everything, you know, tackling everything from the digital dollar to regulations on cryptocurrencies.

The US is essentially joining what the rest of the world is doing. Over 100 countries now representing about 95% of the global gross domestic product are exploring digital currencies. The euro is the digital euro is scheduled to go online in the middle of the decade. China has one in beta right now. The US is pretty far away from it.

It's still going to take a while. The bottom line, Joan, is that basically the idea is that if it's designed well, and that's the question and there's always questions about privacy, then transactions can be quick and easy. These digital dollars would be legal tender, businesses would have to accept them. And they'd be relatively stable because it'd be tied to the dollar, which is different than the cryptos that have had a lot of volatility. And, you know, in the in the crypto space, if we're really efficient and good at it, it would promote the dollar as you know, the world's reserve currency, which we are now and it would shore that position up. And you can imagine how an encrypted dollar would be very desirable around the world.

The challenge is it can be done with or without privacy. And so that's, you know, the big question is, you know, how would they approach it? You know, the key is that, you know, it's constitutionally clear that the central bank doesn't have the authority to do this coinage is a congressional function. And so it really is going to come down to, can Congress get on the same page about whether or not we want this it's going to be, you know, it's hard to get consensus on anything right now. And I think there's going to be a good bit of a lot of Congress will be not on board with this just due to the lack of trust. You know, the Federal Reserve in particular doesn't have a high degree of trust right now just kind of given everything that's going on. So it's something we need to continue to watch and see how it's approached and see the framework by which they're going to establish it and what the privacy components of it will look like.

But at the end of the day, it's still a long way off. We're not going to see anything in the digital currency space anytime soon. Give me your thoughts on that.

And what questions do you have? Does this lead to one moral currency? No, I don't see that. In my view, I think that's not something we need to be concerned about specifically related to this. This would just be a continuation of really the move into the digital space. And I don't think this by itself, a central bank digital currency, you know, takes us any further toward anything we would see, you know, in terms of revelation or anything like that. But I do think it's something we need to keep a close eye on, just to see how it's put together.

And we need to continue to, I think, push toward privacy and, and not have, you know, unnecessary intervention in our financial lives by government overreach. And, and this certainly could go in that direction if it's not put together properly. Right. Uh huh.

Yeah. What is your thoughts on it? You know, I'm not a big fan of it for the reasons that I mentioned just because it can be a way to have overreach into Americans' lives in a way that was not intended. I think if it's done well, and the right, you know, construct is around it, it could be helpful, especially to keep the US dollar as the de facto world currency because all of the other nations are going to continue to move in this direction. And the cryptos, you know, one of the reasons that they're so popular is some folks think that, you know, that could replace the US dollar as the world currency. But I think given our strength and stability despite our challenges here in this country, I'd like to see the US dollar remain the world currency and reserve currency. And I think a digital currency could be a part of it. The big question is just how is it put together?

And is it done with the right privacy constraints? And we don't have a terribly good track record in as of late, you know, in that regard. And so I think that's the big question. And that's where Congress is going to have to really roll up their sleeves on this one and why we're not going to see anything anytime soon.

It's still a good ways down the road. And so we'll have to keep a close eye on it for sure as we move forward. I hope that's helpful to you, Joan.

We appreciate you calling today and asking about it quickly to North Carolina. And how can I help you? Yes. Hi there. Yes, ma'am.

How can I help? Hi. I am calling for a friend of mine. Okay. And in North Carolina, she has parents in another state.

I'll just say the upper North New England area. Excuse me, they are older. And they're starting to have some issues, health issues. That friend knows that the house they live in and the parents are late 80s and 191. They have lived there when she's almost certain the house is paid for. And they've been told the house will come to her and her sister.

Okay. Bearing that in mind, what could the parents do since they know they are gifting or, you know, willing the house to them? What can be done so that the house can go ahead and be transferred to their name now in the event that they cross over to their final destination in the next few years because of certain health situations going on, so that they can avoid the high income tax they would face. Here's the reality, though, Ann, is there is no federal inheritance tax and only six states have a state level tax.

So given that there's no federal inheritance tax and the lifetime gift exclusion for a couple would be, well, for an individual, it's $12.9 million in 2023. So unless this is a pretty big house and they have a pretty big estate, there's not going to be any tax due on this. The key is if they were to quit claim deed or transfer the home ownership to the children prior to their death, then would have to pay capital gains tax on it. And the basis that would be used to determine the capital gains would be their parents purchase price. So if they've owned this a long time and it's had significant appreciation and it's transferred prior to their death, then they're going to have to pay the difference between what their parents bought it for and what it sold for. And so that's a reason why they wouldn't want to make any changes in the ownership of it prior to their death. Because what happens when they pass away is it, the cost basis will be stepped up to the date of death. So it would be as if their purchase price is the value of the home as of the date of death. So if they turn around and sell it right away, there's really not going to be any gain there.

And therefore, because there's no inheritance tax and there's no capital gain, they're not going to pay a penny on that on that gift that they received. So, you know, it would actually be in their best interest for mom and dad to hold on to it until they pass away so that they get that step up in basis. Does that make sense?

And are you still there? All right, it looks like we're having some trouble hearing you. Hopefully that helps you in and maybe you can pass on that information.

If they have further questions, I would encourage them to connect with an estate planning attorney in their area to help them navigate that. Thanks for your call today. You know, we've covered a lot of ground today. And before we wrap up, money management can often be confusing a seemingly endless number of decisions that we have to make. And yet, if we think about it, we can actually reduce our money management just to five uses of money. There's the money we live on the money we give the money we owe for debt and for taxes and the money we grow, live, give, owe for debt and taxes and grow. And God's word speaks to all of them. You know, when we pull the principles from God's word out and apply them to our financial decisions, we can have confidence because they're timeless.

They don't ever change. They transcend the tax code and actually allow us to move forward with peace of mind. That's what we're after here on this program every day. I'm so thankful for my team on behalf of Amy Rios and Tahira Haynes, our call screeners and Jim Henry.

We couldn't do this without them, but we also couldn't do it without you. So thanks for stopping by today, telling us your stories, asking your questions, even sharing your testimonies. We always love to hear what God is doing in your financial life. Faith and Finance Live is a partnership between Moody Radio and Faith Fi. Hope you enjoy the rest of your day and come back and join us next time on Faith and Finance Live.