Want to Grow Your HSA? Try Investing

Investing HSA Funds

Attention, HSA owners! While HSAs earn tax-free interest, interest rates are at historic lows. There is, however, another way to grow your account quickly. Consider investing your HSA funds to see substantial growth.

HSAs are popular for many reasons. In addition to owning the HSA for the life of the account – unlike with a Flexible Savings Account (FSA) or Health Reimbursement Arrangement (HRA) – account holders also enjoy triple-tax savings. With an HSA, account holders:

  1. Make pre-tax contributions
  2. Use the funds tax-free for eligible medical expenses
  3. Earn tax-free interest on the account balance and income from investing HSA dollars

I want to tell you more about tax-free interest on the balance, and tax-free earnings from investing.

Tax-Free Interest

As it says in the name, Health Savings Accounts are a type of “savings account”; like with a traditional savings account, you earn interest on the balance. The bigger your balance, the more interest you earn, and it’s all tax-free!

Furthermore, with an HSA, there is no “use it or lose it” rule like with FSAs. Each year, the remaining balance rolls over to the following year, continually earning interest. This is particularly beneficial if the account does not meet your plan provider’s minimum investment threshold.

Tax-free interest is great benefit, though interest rates remain at record low levels. If you’re looking for larger, quicker account growth, you should consider investing your HSA dollars.

Investing HSA Funds

Investing HSA funds is a huge factor in helping HSA owners build up their accounts.

Did you know? In June 2016, HSA investment assets grew 23 percent from the previous year. However, there’s one thing that stands out: it’s estimated that only 3 percent of all HSA account holders invest. That means the vast majority of HSA owners aren’t making the most of their accounts.

One caveat is that some HSA custodians require a minimum balance before you can invest. The minimum balance thresholds range between $1,000 – $2,500. Once you meet the threshold, you can choose investment options like stocks, bonds, and mutual funds, or choose from a variety of growth plans selected by a licensed investment adviser. You may also have access to investor statements and educational tools, among other features.

If you aren’t saving and investing your HSA funds now, you could be missing out. The tax advantages can help with both short and long term growth, while helping you reduce the cost of personal healthcare. In addition, if you’re looking to build wealth and use your HSA funds for other purposes in retirement (penalty-free, but taxed like regular income), investing is a strategic option.

If you own an HSA, ask yourself:

  • Am I maxing out my annual contributions?
  • Does my HSA balance meet the minimum threshold for investing?
  • Can I sustain my account through interest alone, or should I invest?