Health Savings Accounts (HSAs) can be a great investment in one’s personal healthcare and financial future. Their versatility, and the fact that these accounts can be kept for life, mean that HSA owners need to adopt strategies for building and using the accounts to their full potential.
March 17, 2021
By Chris Gunderman
Originally Posted by Employee Benefit News (EBN)
We’ve heard this on repeat: Health Savings Accounts can be a great investment in one’s personal healthcare and financial future.
Their versatility, and the fact that these accounts can be kept for life, mean that HSA owners need to adopt strategies for building and using the accounts to their full potential. Should you save and earn interest, or invest your HSA balance and watch it grow? The answer largely depends on how you use your account. But developing a long-term approach to capitalizing on your HSA now can pay big dividends down the road.
Personal goals, immediate healthcare needs and stage of life can all factor into the decision whether or not to invest.
People with recurring healthcare expenses use their HSA for medications, doctor visits, medical procedures and other healthcare needs. For those who use their HSA regularly and spend down the balance, investing may not be the best option. But you can still enjoy tax-free contributions and tax-free distributions for eligible expenses.
For younger generations (Gen Z, Millennials and Gen X) or for those who do not have significant healthcare expenses, developing an investing strategy now can be a big boon toward covering future healthcare costs or supplementing their retirement accounts.
Building up an HSA vs other retirement plans
While an IRA or 401(k) is a solid option for a retirement account, an HSA offers a greater amount of flexibility over a lifetime.
As long as they’re enrolled in a qualified high deductible health plan, people can make tax-free contributions. They own the account for life and can take tax-free, penalty-free distributions for qualified out-of-pocket healthcare expenses at any time. HSA owners can also grow the account tax-free by accruing interest or investing.
Then after age 65, the person can use the money for any expense without penalty – healthcare or otherwise. Healthcare expenses remain tax-free, while distributions for other types of expenses are taxable. Non-qualified distributions before age 65 are subject to both penalty and tax.
Why invest your HSA balance?
The third leg of the “triple tax advantage,” tax-free investment growth, is a key component for setting up future spending.
Read the full article, “Give that HSA balance a boost,” on EBN.
Chief Financial Officer, DataPath, Inc.
Chris Gunderman joined DataPath as Chief Financial Officer in 2016. He brings with him over two decades of financial accountability and leadership experience in both the public and private sectors. A graduate of the Sam Walton College of Business at the University of Arkansas with a B.S.B.A in Accounting, Chris is a Certified Public Accountant and a Chartered Global Management Accountant. He is also a member of the American Institute of CPAs and the Arkansas Society of Certified Public Accountants.