Health Savings Accounts (HSAs) are a popular way to pay for healthcare expenses, but did you know they can also help you build a significant health savings fund over time? Beyond just paying for qualified healthcare expenses, an HSA offers a unique opportunity to invest in tax-advantaged growth. In this article, we’ll explore why and how to invest your HSA, tips for getting started, and ways to make sure your investments match your health and financial goals.
Why Consider Investing Your HSA?
HSAs have a powerful “triple-tax advantage” that makes them unique in the world of personal finance. Contributions to your HSA are made with pre-tax dollars, the funds can grow tax-free, and withdrawals for qualified healthcare expenses are also tax-free. This triple-tax advantage means that every dollar you save or invest in an HSA can go further than it might in a taxable account, giving you more purchasing power for future healthcare needs.
Investing your HSA funds allows you to take full advantage of this tax-free growth. This can be especially valuable if you’re using your HSA as a long-term savings tool rather than spending it down every year. Plus, after you turn 65, you can use your HSA funds for any expense without penalties—though non-medical withdrawals are taxed at regular income rates.
How to Invest Your HSA Funds
Investing your health savings is easier than you might think. Here are a few steps to help you get set up:
Set an Investment Goal: First, consider your health expenses and savings goals. Are you aiming to use your HSA primarily for near-term health expenses, or are you building it as a long-term investment? Your goals can guide the types of investments you choose.
Select your Preferred Minimum Cash Balance: Whether you are a regular or periodic spender with your HSA, start your investment journey by selecting your preferred minimum HSA cash balance ensuring you are prepared to pay for qualifying health care expenses without interrupting your investment strategy.
Select Your Investments: Once you’re ready to invest, explore your options, which include a lineup of professionally selected mutual funds or an integrated Schwab Health Savings Brokerage Account (HSBA) offering you access to thousands of stocks, mutual funds, ETFs, and more.
Choosing the Right Investment Strategy for Your HSA
There’s no “one-size-fits-all” approach to investing in an HSA. The best strategy depends on your personal risk tolerance, healthcare needs, and financial goals. Here are a few popular strategies:
Conservative Approach: If you plan to use your HSA for frequent medical expenses, a conservative approach focused on cash or low-volatility investments, like bond funds, might be appropriate. This ensures that funds are readily available with minimal risk.
Moderate Approach: For those who want a balanced approach, a moderate investment strategy might involve a mix of stocks and bonds. This approach provides growth potential without taking on as much risk as an all-stock portfolio, making it suitable if you’re saving for both healthcare costs and longer-term goals.
Aggressive Approach: If your goal is to build wealth over the long term and you don’t anticipate needing your HSA for immediate expenses, you might take a more aggressive approach by investing primarily in stocks. This approach seeks higher returns, making it well-suited for those using their HSA as a retirement supplement.
Evaluating Your Investment Choices
When choosing your HSA investments, it’s essential to consider a few key factors:
Fees and Expenses: Each investment has associated fees that impact your overall returns. Pay attention to fund management fees, as lower-cost options generally allow more of your investment growth to stay in your account.
Performance History: While past performance doesn’t guarantee future returns, reviewing a fund’s track record can give you a sense of its potential. Look at long-term performance to better understand how an investment might weather economic ups and downs.
Diversification: Diversifying your HSA investments helps you spread risk across different asset types. For example, investing in both stock and bond funds can balance potential growth and stability.
Reviewing and Adjusting Your HSA Investments
Regularly reviewing your HSA investments is a good habit, as your healthcare needs and life circumstances may change over time. Here are a few points to keep in mind as you maintain your HSA investments:
Semi-Annual Review: Take time at least twice a year to review your HSA balance and investment allocation. Are you on track to meet your goals? Have your healthcare needs or financial priorities changed? Small adjustments to your strategy can help keep you on target.
Life Changes: Major changes like marriage, having children, or changes in health can impact your savings needs. If you expect more healthcare expenses, consider moving more funds into conservative investments.
Rebalancing: Market fluctuations can shift your investment allocation over time. Rebalancing helps ensure that your portfolio stays aligned with your original target, maintaining your desired balance of risk and growth.
Getting Started
HealthEquity has built an Investment Desktop providing you with the tools and resources needed to successfully navigate these choices on your own.
Prefer to have some help along the way? HealthEquity Advisors can help guide your investment strategy and portfolio selection with the option for full-service support including automated trading, cash management, and weekly touchpoints to keep you updated and on-track to meet your goals.
HealthEquity makes it easy to invest your HSA dollars. Here’s how to access the HSA Investment Desktop:
Select ‘Health Savings Account’ from the left navigation pane.
Select ‘Manage HSA Investments’ from the ‘HSA Investments’ card on your dashboard.
Final Thoughts
Investing with your HSA may help you maximize the tax benefits and build a savings cushion for future health or retirement needs. Whether you’re just starting or have been using an HSA for years, taking the time to set an investment strategy that aligns with your goals can pay off over the long term. By choosing the right investment mix and reviewing your strategy regularly, you’ll be well on your way to making your HSA work harder for you.
Please review the HealthEquity HSA Investment Guide for additional details and fund lineup.
¹Investments are subject to risk, including the possible loss of the principal invested and are not FDIC or NCUA insured, or guaranteed by HealthEquity, Inc. HSA holders may select mutual funds for investment through the HealthEquity investment platform but HealthEquity, Inc. does not provide investment advice. HealthEquity Advisors, LLC, a wholly owned subsidiary of HealthEquity, Inc. and an SEC-registered investment adviser, provides web-based investment advice to HSA holders that subscribe for its services (minimum thresholds and additional fees apply). Registration does not imply endorsement by any state or agency and does not imply a level of skill, education, or training. Investing may not be suitable for everyone. You should carefully consider the investment objectives, risks, charges and expenses of any mutual fund before investing. A prospectus and, if available, a summary prospectus containing this and other important information can be obtained by visiting the fund sponsor’s website. Please read the prospectus carefully before investing.
HealthEquity does not provide legal, tax or financial advice.