Investing in HSA’s

If you are an individual enrolled in a high-deductible health plan (HDHP), then chances are you have access to a tax-advantaged savings account called a Health Savings Account (HSA).

In this account, you can make before-tax contributions and then use that money on out-of-pocket, qualified medical expenses tax-free. How awesome! However, with the cost of medical expenses rising significantly faster than the rate of inflation, it will be very difficult to save for all of the possible medical expenses you may need. In fact, according to an annual estimate by Fidelity, the average couple retiring at age 65 in 2018 will need about $285,000 to cover healthcare and medical costs in retirement.

The good news that many people are unaware of:

Several HSA accounts actually allow you to invest the money in stock or bond mutual funds, similar to a 401(k), in order to help your account grow over time. Investment gains in an HSA account accumulate completely tax-free as well, making these accounts a very favorable savings vehicle.

When investing the assets in your HSA, you should consult your financial advisor because everyone’s situation is different and you want to make sure the investments match your risk tolerance. If you anticipate that you will need a certain amount of cash in the account in the short term for known upcoming medical expenses, then it may be prudent to keep that portion in cash. In fact, many HSAs that do have investment options will also require you to keep a certain dollar amount in cash for just this reason. For the funds in your HSA that are above your deductible or that you may not need for many years, it can make sense to take a more aggressive approach and invest those assets in equities.

Ultimately, it is important for you to examine your HSA to see if the custodian that manages your plan allows for investments and, if so, take advantage of this option as another way to potentially achieve long-term tax-free growth.

Read all of our articles on Health Savings Accounts

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