Investment Options for Your HSA

What is the #1 barrier to early retirement for many? Healthcare! Health insurance is the main reason folks aren’t retiring as early as they otherwise would like to. While there are plenty of healthcare options (albeit pricey ones) for those on the brink of retirement, what can those that are 10+ years out do now to start planning for this major cost in retirement? Even if you wait to retire until Medicare age, you still should expect hundreds of thousands of dollars in healthcare expenses. So, what is a hopeful retiree to do?

One of the solutions to this retirement barrier, and a way to pay for out-of-pocket healthcare expenses in retirement is the Health Savings Account (HSA). Touted as a powerful, tax-advantaged savings vehicle, this account allows us to save AND spend money without paying any taxes. If you have access to one of these accounts through your employer, you probably know all about the tax advantages, IRS rules, and how to use the account to pay for healthcare expenses today or in the future. Check out our previous article here to learn more about HSAs.

What most people don’t know, or at least don’t take advantage of, is the investment options. Only 4% of HSA Accounts have invested assets*! That means millions of people are earning just a few dollars a year in interest on thousands of dollars that they have set aside to help pay for healthcare expenses.

  • Did you know that you can invest your HSA in mutual funds and other options, depending on the bank where your account is invested?
  • Did you know that you NEVER have to pay taxes on investment returns if you use the funds to pay for qualified healthcare expenses?

This is the only savings account for which you can avoid paying taxes on your investment returns!

Once you reach 65, you can use the funds just like a 401(k) or IRA if you don’t want to use it tax-free for qualified medical expenses.

So, how do you learn about investing your HSA funds?

  • Contact the bank where your HSA Account is held. Many times investing is a few simple clicks on the website you use to manage your account.
  • Ask if there is an amount of cash that you are required to hold in your HSA before you can invest the remaining balance. It could be as little as $1,000.
  • Review your investment options and determine the right investments for you. Talk to a financial planner about your choices.

Since your HSA account gives you a head start on paying for your healthcare expenses, and does so in the most tax-advantaged way, you are on your way to growing your HSA account into a savings vehicle that affords you options in retirement,.

Are you an employer interested in adding an HSA to the healthcare options for your employees? Talk to our experts today!

Kristin Parker, CEBS
Benefits Consultant




* per Employee Benefit Research Institute (EBRI) Issue Brief released October 15, 2018.