Investing Your HSA

investing your hsa

Health savings accounts (HSAs) are an increasingly popular choice among consumers and employers offering health benefits. They are tax-advantaged accounts that can be used to pay for medical expenses now or later in life.

HSAs allow accountholders to save for their future healthcare needs by combining a high-deductible health plan with a tax-advantaged savings account. The combination provides triple-tax advantages for contributions, investment earnings and qualified distributions.

How to fund an HSA

Once you’ve chosen an HDHP and opened an HSA, you will need to start contributing money to the HSA. You can do so by putting money into your HSA from your salary or from other sources, such as a pre-tax retirement account.

One of the first things to do when you’re ready to make a contribution is to read the IRS publication that describes the HSA rules and guidelines. You’ll need to follow these instructions carefully to avoid any penalties that may be incurred in the future.

The best way to invest your HSA funds is to use an online investment platform such as Bend. This allows you to easily make a tax-free deposit into your HSA, then choose from a variety of mutual funds that invest in stocks and bonds.

Many of these HSA mutual funds are designed to grow tax-free, and the earnings are rolled over year to year. The investments you select will help ensure your account meets your investing goals and your risk tolerance.

Choosing an HSA administrator with a quality selection of mutual funds is important. A good selection includes a diverse range of funds that include income, bond, stock and combination investments to match your preferences and risk tolerance.

The right account will also offer an online dashboard where you can monitor your balance and investment progress. This gives you the ability to see how your funds are doing and helps you build your HSA savings.

You can also make a withdrawal from your account to cover eligible medical expenses without paying the penalty. However, you must report the amount on your tax return. If you don’t report the withdrawn funds, you will owe an additional 20% tax on your non-qualified distribution.

There is a lot to consider when using an HSA, so it’s best to consult with a financial professional for guidance. But in the end, it’s a great way to help you save for future medical expenses and reduce your out-of-pocket costs.

What is the difference between an HSA and a Roth IRA?

Unlike Roth IRAs, HSAs are designed to be used for qualifying medical expenses. They are also tax-advantaged and are not required to be withdrawn prior to age 65.

While an HSA can be a powerful tool to save for your future healthcare expenses, it’s important to remember that they are only for those who are eligible for the program. This includes people who are covered by a high-deductible health insurance policy and don’t have Medicare or another type of coverage.