Health Savings Accounts (HSAs) recently crossed $100 billion in assets spread across 32 million people. That means that roughly 20% of all employees have an HSA through their employer. Unfortunately, only 7% of the owners of these accounts have taken advantage of the opportunity to invest the funds held in their HSA.
Not Your Father’s, or Mother’s, Health Benefit
Many people think that HSA rules are just like the rules for the old FSA (Flexible Spending Account) that have been around for years. The difference is right in the “S.” FSA’s are set up to help you “spend” while HSAs were created to help you “save” at the same time.
3 Of the Most Important Facts About Your HSA:
- It’s your money no matter what. Unlike an FSA held by your company in your name, an HSA is all yours. So, the money you and/or your employer put into your HSA does not have to be used up every year. What you don’t use rolls over year after year. You can even take it with you when you change jobs.
- You don’t always have to use your HSA for medical costs. Depending on your income and health situation you can choose to pay for your health care with either your regular accounts or your HSA. There is nothing wrong with using your HSA to pay for your medical costs right now if you need to, but If you are a high-earner and have disposable income, it might make more sense to pay for your medical costs with disposable income. Then you can let your HSA asset value build over time to support your medical costs in retirement. In fact, once you’re 65, you can spend your HSA funds on non-medical expenses without paying a penalty.
And here’s the big one…
- You can invest your HSA. Many people don’t realize they can invest the assets in their HSA. Every bank raced to enter the HSA market when it began in 2004, but not all banks have the ability to manage investments. This is why so many HSA accounts are just sitting in cash not growing at all. Remember, you have full control over your accounts. If you don’t have investment options available today, you can take the HSA that was established by your employer and move it to a bank focused on the HSA market like HSABank or HealthEquity.
A Truly Unique Investment Tool
HSAs have powerful tax benefits and represent one of the most powerful savings tools for Americans today. Their triple tax-free benefit is uncommon among investment accounts:
- Personal contributions into your HSA are tax free
- Investment income in your HSA grows tax free
- Distributions for qualified medical expenses are tax free whenever you need to take them.
Is Investing Your HSA Assets Right For You?
Look at the size of your HSA balance and see if it makes sense and it’s possible to invest a portion of it through your current provider. If you don’t have an investment option, it might be time to find a new HSA provider. If you do have options, remember it is still a good idea to leave a certain portion of your account in cash based on your personal situation.
Iryss can help you learn more about HSAs.
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