Non-typical investment accounts

0:00- [Narrator] In this video, we're gonna talk about investment accounts that are directed for specific purposes, but could be part of just generally a way to save money, save money in your life, save money even for things like retirement. So first I'll focus on health.

0:15So for health, there is something known as health savings accounts. Now, not everyone can have a health savings account. You have to have a high deductible insurance plan. Your deductible is of course what you need to pay out of pocket before the insurance kicks in.

0:32But the tax code provides a way through this HSA to contribute money into this account that is pre-tax, so you don't have to pay tax on the money before you contribute it, so that's very good. It can grow without being taxed, so no tax on growth, on growth. And then if you use it for approved expenses, you also have no taxes when you take it out.

0:59No tax when used. So there is a triple tax benefit here, and you might say, "What can I use it for?" Well, generally speaking, I'm not go into all of the details, it can be used for health care related expenses, but even things like sunscreen or certain types of medications or things you use every day might be allowed.

1:21Now, what's cool about this is if you don't use it in a certain year, it rolls over to the next year, and once again, it can grow tax-free. Now the only catch is if you wanted to use it for non-approved expenses before the age of 65, you're going to have to pay a penalty and pay taxes.

1:38If after the age of 65 you were to take it out, then you just have to pay taxes on it. So in a lot of ways, the stuff that you don't use would be a little bit like a 401k plan. So that's pretty good. If you're using it for approved expenses, you don't even have to pay taxes on it.

1:52And if you are over 65 and you're using it for non-approved tax expenses at that point, it's like a 401k. Now, another type of account that we talk about in other videos is a 529 Plan, and this is for education. And the idea here, and it's different from state-to-state on your contribution limits.

2:11It's related to what state you are in, but this is a way to put money aside. It is after-tax money, after-tax, so you have to pay taxes first. So you don't get the pre-tax on the HSA, but no tax growth, no tax growth, and no tax when used for approved expenses.

2:30No tax when used. If you use it for non-approved expenses, you might have to take a penalty and also have to pay taxes. Now, why would I do this? Well, I actually do do this for my children because I can contribute money, and different states have different limits, a certain amount every year.

2:49It can grow tax-free, and when my kids go to college, I can use that money without paying taxes on it for their college. So one way to think about it is, as long as my investments grow faster than the rate at which college tuition is growing, which isn't always easy 'cause college tuition is growing quite fast, then that's going to provide a very powerful way for me to be able to afford my children's college education, which is getting more and more expensive all the time.

3:16Now, last but not least, and this is the one that the fewest people even think of as some type of an investment account, but you have whole, whole and universal life insurance. So, life insurance is really just this idea that if, and I have life insurance, that if I were to pass away, who's going to take care of my family?

3:39And so if I were to pass away, if I have a life insurance policy, my family will be paid a certain amount. Now, I pay a premium on my life insurance. Now, there's different types. There's term life insurance, where I say, "Hey, I'm gonna pay a certain amount "for 10 years or 20 years, "and if I were to die in that 10 or 20 years, "my family will be paid."

3:57And that might be useful if your kids are young. You're like, "Okay, especially when they're not working, "we're paying off a mortgage, I need a term life." But whole life insurance, you're paying really two components. You're paying for the insurance part and then you're also paying above and beyond.

4:12You could almost view it as a cash value or a cash part of it. Now, the cash part of it can be invested, and if you don't use it at any point, if and when you die, I guess we will all die at some point, your family, if it's invested well, and it depends whether it's whole or universal, whole is more predictable, universal, it's a little bit more variable, that will affect the total amount of payout your family will get.

4:37But there's also circumstances in which you can essentially sell the policy back to the insurance company, or even in certain cases even to third parties. You can also borrow from the policy, the cash portion of your policy, tax-free. So there are ways to use this cash, although it's a little bit more complicated, and some people would argue, "Hey, maybe you should just get a term insurance policy "and all that extra money, "maybe you invest it in some other way."

5:02But these are just things to think about. Even some of these things that are for specific use cases, life insurance, education, or healthcare, can be part of your overall investment and saving strategy.