Guide to Investing Your HSA Account for Growth

The following infographic, “A Guide to Investing Your HSA Account for Growth”, provides an overview of Health Savings Account (HSA) basics.

Read below to find out why HSAs are a great option for retirement, investment strategies, and more.

HSA investing

Guide To Investing Your HSA Account for Growth

Health Savings Accounts (HSAs) are more than just a tax-advantaged tool for paying medical expenses. They can also help you save for retirement.

Why include HSAs in retirement planning?

HSAs offer a triple tax advantage:

  • All contributions to your HSA account are tax-deductible
  • All funds in your account grow tax-free – including interest, dividends, or capital gains
  • Withdrawals that pay for qualified medical expenses are tax-free
  • HSA funds can be invested similarly to those in a 401k or IRA account

Let’s start with the basics.

  • Withdrawals that pay for qualified medical expenses are always tax-free, regardless of your age
  • You must be enrolled in an HDHP to contribute and may not be on Medicare
  • After age 65, you can use withdrawals for any expense, although they will be taxed at your standard rate
  • You own your HSA account and take it when you change jobs or retire

HSA Contribution Limits

 HSA Investment Strategies

  • Treat your HSA like an investment account. Don’t spend the funds unless you need them for medical expenses
  • Max out your investment by making the maximum annual contribution each year (including the extra $1,000 catch-up after age 55)
  • Take full advantage of any employer-matching contributions
  • Invest unspent funds wisely, using sound diversification and risk strategies

How Large Could Your Account Grow?

With maximum annual contributions and minimal medical expense withdrawals, you can build a hefty nest egg to complement your regular retirement plan.

Assume the following parameters:

  • You start your HSA account at age 26
  • You make the maximum family coverage contribution every year until age 65, including catch-up contributions
  • You earn an average annual return of 8% by investing in the stock market
  • You do not withdraw funds for medical expenses
  • You pay no fees for your plan

When you retire at age 65, your HSA may be worth more than $1.9 million!

Even if you only contribute $3,000 a year for 20 years, don’t withdraw any funds, and the money grows at 8%, you will still end up with about $143,000 – an excellent addition to anyone’s nest egg.

(Calculations via Fidelity Bank’s HSA Calculator)

Is an HSA superior to an IRA/401k plan?

  • Once you withdraw funds from a 401k or IRA, you pay income tax regardless of how the funds are spent.
  • Unlike 401(k)s, or IRAs, an HSA does not require you to begin making withdrawals at a certain age.
  • The funds can stay in your HSA account (earning interest or investment income) as long as you want.

For 40 years, DataPath has been a pivotal force in the employee benefits, financial services, and insurance industries. The company’s flagship DataPath Summit platform offers an integrated solution for managing CDH, HSA, Well-Being, COBRA, and Billing. Through its partnership with Accelergent Growth Solutions, DataPath also offers expert BPO services, automation, outsourced customer service, and award-winning marketing services.

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