Most HSA Users Miss Out on Key Investing Perk

Health savings accounts (HSAs) are a valuable tool for Americans to save for future healthcare expenses. However, a concerning number of account holders are missing out on the potential growth of their HSA funds by not investing them. This oversight could be costing them thousands of dollars over time.

The appeal of HSAs lies in their “triple tax advantage.” Contributions to an HSA can be made with pre-tax dollars, grow tax-free, and qualified withdrawals are not taxed. This tax advantage makes an HSA a powerful savings vehicle, potentially even more so than a 401(k). However, the contribution limit for an HSA is lower ($4,300 per year for an individual).

A recent report from the Employee Benefit Research Institute (EBRI) found that fewer than one in six HSA account holders are investing their funds. This low percentage could be due to a lack of awareness of the option to invest, hesitancy about market volatility, or the need to cover near-term healthcare expenses.

The EBRI report highlights the importance of investing HSA funds, as it is one of the key advantages of these accounts. By investing in assets like mutual funds or certificates of deposit, account holders can potentially grow their savings over time.

Additionally, the report suggests that many HSA account holders are withdrawing funds annually to pay for medical expenses. However, it may be more beneficial to pay for these expenses out-of-pocket and let the HSA funds continue to grow tax-free. Education about optimal HSA strategies, such as the flexibility of using funds for non-medical expenses after age 65 without penalties, is crucial.

It’s essential to understand that HSA funds can be used for a variety of qualifying medical expenses, including deductibles, copays, over-the-counter drugs, and menstrual products. Unlike flexible spending accounts (FSAs), there is no annual deadline to use HSA dollars.

In conclusion, maximizing the potential of an HSA requires investing funds, strategic use of withdrawals, and understanding the tax advantages and flexibility of these accounts. By taking advantage of these features, account holders can ensure that their HSA funds work for them in the long run.