What you need to know about investing in your health savings account
We want our money to work for us so that we don’t have to work forever.
Click to enlarge
One tool that might be useful is a Health Savings Account, or HSA.
What is an HSA?
Tiffany Lam-Balfour with Nerdwallet stated that an HSA is both an investment account and a savings account that allows users to contribute money, save money, and invest the balance for current and future medical expenses.
To contribute to an HSA, you must have a high-deductible health plan (HDHP), according to HealthCare.gov. However, before signing up for a plan, confirm that it is eligible for the HSA.
“If you choose a high deductible plan, you will be paying a large portion of your medical expenses out of pocket until you reach that high deductible,” Lam-Balfour said.
This is one of the reasons why health savings accounts have certain advantages.
Lam-Balfour said the accounts benefit from a triple tax deferral. No taxes, no taxes while the money is there and no taxes when you take it out.
“You are avoiding all of these different types of taxes that you would normally have to pay on a different type of account,” Lam-Balfour said.
HSA funds can also be invested as a 401k, so the money grows over time.
“Usually you can invest in mutual funds, index funds, whatever kind of security you usually invest in,” Lam-Balfour said.
It is important to take growth into account, as health care costs probably do not decrease with age.
But, like any investment, Lam-Balfour said there is a risk and a reward you need to consider. Because your money is in the market, you may lose some.
HSA funds can be spent at any time on important items like surgeries and childbirths, and small items including allergy medications and feminine products. Just keep your receipts.
You can also reimburse yourself from the HSA for medical expenses after they have occurred. However, you cannot reimburse yourself for expenses that occurred before the account was opened.
This year, if you have HDHP, you can contribute up to $ 3,600 for individual coverage and up to $ 7,200 for family coverage in an HSA. In 2022, contribution amounts go up to $ 3,650 for individual coverage and up to $ 7,300 for family coverage.
Unlike a flexible spending account, HSA funds are renewed from year to year if you don’t spend them.
If you are spending the funds on a ineligible expenses, you will be subject to taxes and possible penalties.
Some retailers, including Amazon, also dedicate pages to eligible expenses.