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What you need to know about investing your Health Savings Account

WTHR Indianapolis logo WTHR Indianapolis 10/4/2021 Allison Gormly

We want our money to work for us so that we don't have to work forever.

A tool that might be able to help is a health savings account, or HSA.

What is an HSA? 

Tiffany Lam-Balfour with NerdWallet said an HSA is both an investment account and savings account that lets users contribute money, save, and invest the balance for current and future medical expenses.

To contribute to an HSA, you need to have a high-deductible health plan (HDHP), according to HealthCare.gov. However, before signing up for any plan, confirm that it is HSA eligible.

"If you choose a high-deductible plan, you'll be paying a lot of your medical expenses out of pocket right until you reach that high deductible," Lam-Balfour said.

That's one of the reasons health savings accounts come with certain benefits.

HSA Benefits

Lam-Balfour said accounts are triple-tax-deferred. No taxes going in, no taxes while money is in there and no taxes when you take it out.

"You get to avoid all of those different types of taxes you would usually have to pay for in a different type of account," Lam-Balfour said.

HSA funds can also be invested like a 401k, so the money grows over time.

"Usually you can invest in mutual funds, index funds, any different type of security that you usually invest in," Lam-Balfour said.

Growth is important to consider, since health care costs probably aren't going down with age.

But, like any investment, Lam-Balfour said there is a risk and return that you do have to consider. Because your money is in the market, there is a chance you could lose some.

HSA funds can be spent anytime on big ticket items like surgeries and childbirth, and small ticket items including allergy medicine and feminine products. Just hold on to your receipts.

You can also reimburse yourself from the HSA for medical expenses after they occurred. However, you cannot reimburse yourself for expenses that occurred before the account was opened.

Rules

This year, if you have an HDHP, you can contribute up to $3,600 for self-only coverage and up to $7,200 for family coverage into an HSA. In 2022, contribution amounts go up to $3,650 for self-only coverage and up to $7,300 for family coverage.

Unlike a Flexible Spending Account, HSA funds roll over year to year if you don't spend them.

If you spend the funds on a non-eligible expenses, you will be subject to taxes and possible penalties.

Some retailers, including Amazon, also dedicate pages to qualifying expenses.

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