On The Agenda

1. Reimbursing yourself with an HSA

2. The three most important numbers in your financial life ^LUMINARY

3. A positive economic update from the Fed

4. High public debt is here to stay ^LUMINARY

5. Lazy taxes and why you should avoid them

6. How to use a 401(k) to start a business ^{FREE LUMINARY!}

HSA Reimbursements

From Jon Scott, Lead Author 

If you’ve been following Hoskin Capital for some time, you know we are big fans of the Health Savings Account (HSA). One of the best parts of this account is the ability to store and invest money tax-free. However, there are times you may actually need to use the money stashed away in your HSA. For example, you may realize during the course of the year that there was a large expense that was eligible for purchase through you HSA, but at the time of purchase you paid with your regular credit card. No need to worry, you can always reimburse yourself.

How to reimburse yourself for an HSA expense?

First, you must have had an open HSA during the time the expense was incurred to qualify. In order to reimburse your expense, the typical method is to log on to an online portal through your Health Savings Account provider. From here, there should be an option to reimburse yourself for an HSA expense that was not paid for on your HSA card. The first step before receiving reimbursement funds is to link a bank account to your HSA. This will allow the reimbursement amount to come into your bank account once approved. This process usually requires verifying your account, which is done by the HSA provider depositing small amounts into your account and you confirming the amounts deposited via the providers website (note this process may take a 1-3 days). Once verified, you will need to log the expense. Make sure to keep a receipt of your purchase and upload a scan or image onto the portal website along with the amount that should be reimbursed if your provider requires it. Even if proof of purchase is not required, you’ll want to keep your records just in case. From here, it’s pretty easily sailing. As long as the provider should approve your expense and the money should reach your account a couple days thereafter.

For more info on Health Saving Accounts, check out our free article here.

The three most important numbers in your life  ^{LUMINARY SECTION}

If you haven’t guessed, these three numbers are your credit score. Credit scores range from 300-850, have a huge effect on the rate at which you borrow money, and can even prevent you from being chosen for a job.

What are credit scores?

A Positive Economic Update From The Fed

From Bennett Fees, Economic Research Associate

There are many ways the Fed looks at economic conditions. One of these is the so-called, “Beige Book”.

What is the Beige Book?

The Beige Book, released eight times a year, covers economic conditions across all 12 Federal Reserve districts. Most of the information consists of qualitative information from business contacts, interviews, economists, and other community organizations in the respective districts. This information is then used by Fed officials and informs their outlook for future monetary policy and economic growth.

For instance, Susan Collins, President of the Boston Fed said the Fed should be “patient” going forward - a notable change in tone from the aggressiveness present at the start of the hiking cycle.

Here are the takeaways from the report.

• “Job growth was subdued across the nation”

• “Most Districts reported price growth slowed overall”

• “Most Districts indicated economic growth was modest during July and August”

This is positive because all three of these points bolster the case for a soft landing. If inflation keeps cooling, and the labor market loosens to a level Powell is comfortable with, all while economic growth is positive, then we may avoid a recession after all.

Going forward, this leads the market to largely expect interest rates to stay where they are for the next meeting on September 20th. Stay tuned for more updates.

High public debt is here to stay ^{LUMINARY SECTION}

In their highly talked about paper at Jackson Hole, Barry Eichengreen and Serkan Arslanalp covered the rise and persistence of public debt. Consider the following figure which summarizes the evolution of public debt across 182 countries (67 developing economies, 81 emerging markets, and 34 advanced economies) since 2000.

These graphs show us a dramatic increase in debt ratios by 20% since the GFC. In advanced economies, this is even greater where debt ratios have risen to nearly 85% of GDP. One step further, the US public debt is closing on 100% of GDP, still not the highest among advanced economies.

So why do the authors think this debt will stick around?

Don’t pay lazy taxes

From Nate Hoskin, Founder & Lead Advisor

Don't pay lazy taxes. If your insurance company increases your premium every year (and they will), shop around and get a better rate. You might have to do this every year but it will save you thousands of dollars.

Did you just pass the one-year mark and your internet cost doubled? Switch to a new provider and get another honeymoon rate.

In fact, just cancel every subscription, even the ones you use. I know that sounds insane, but most services will give you a discount or free months if you try to cancel. I just pretended to cancel my newsletter service (you know, this one!) and got 3 months free. I saved $300 this year.

After housing, food is probably going to be your next biggest cost. That $10 DoorDash delivery fee is 100% lazy tax. Would you pay yourself $10 to drive to the restaurant? Is it possible to cook something and do the dishes in the amount of time it would take to go to and from the restaurant?

I spent 6 years working in kitchens, if you tell me that you want a series of meals that cost less than $10 and take less than 20 minutes I will give you as many as you can handle!

Use a 401(k) to buy a business ^{LUMINARY SECTION}

Heads up, this one gets complicated but it’s so cool I had to tell everyone about it, not just our Luminaries.

If you like what you read, hit that subscribe button to keep Luminary sections unlocked.

A Rollover Business Startup 401(k) (ROBS) lets entrepreneurs invest their retirement savings into their own businesses without early withdrawal penalties or taxes.

To use this method, you should first have an existing 401(k) or traditional IRA with a sufficient balance.

Next, establish a C Corporation (C Corp) for your business, as ROBS transactions are typically structured around C Corps. Then, create a ROBS plan, sometimes called a Business Owner's Plan, with the assistance of a ROBS provider or qualified attorney.

This plan serves as the legal framework for your investment. Within your C Corp, establish a new 401(k) plan dedicated to your business, allowing you to roll over your existing retirement funds tax-free and penalty-free. These funds can then be used to purchase shares of stock in your C Corporation, providing capital for your business needs.

SERIOUS WARNING: Betting your entire retirement nest egg on a startup is a bad idea. This will not be applicable to most people, but it’s really fun to write about because it’s another way to optimize your finances.

For anyone who is interested in something like this, please please book a meeting with me rather than diving in head first. This is not something Hoskin Capital does, but I can help you understand the process, the risks, and the costs.

Now let’s use an example:

1. Dave, an entrepreneur or existing business owner, establishes a new C Corporation in the state where the business will be operating. The ROBS structure must involve a C Corporation and not an LLC or S Corporation because normally the IRS prohibits retirement accounts from buying stock in a company where the owner works. That said, transactions that involve the purchase of “Qualifying Employer Securities”, which is defined as the stock of a Corporation, are exempted from this ban. Using an LLC would not satisfy this definition and only individuals can be shareholders of an S Corporation (a 401(k) Plan is a trust).

2. The new C Corporation adopts a prototype 401(k) plan that specifically permits the plan participants, including Dave, to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities”.

3. Dave elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover of a prior employer’s 401(k) Plan funds into the newly adopted 401(k) plan.

4. Dave then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that Jim wishes to invest in the new business).

5. Dave also invests personal funds equal to more than 1% of the purchase price so the structure is not considered an Employee Stock Ownership Plan (ESOP).

6. The C Corporation utilizes the proceeds from the sale of stock (the 401(k) money and the 1% personal money) to purchase assets for the new business.

7. Dave would be able to earn a salary from the revenues of the business as well as personally guarantee any business loan.