Using a Health Savings Account (HSA) as an investment vehicle can be a great way to prepare for retirement. It requires a high-deductible health insurance plan in order to participate in the HSA, but you can invest the funds however you wish.
I decided to switch to a high-deductible plan with an HSA this year, since my family has low medical expenses, and so far it’s worked out perfectly. We’ve paid for some medical expenses, plus the family’s eyewear for the year, and still have a good sum of money left over.
Realizing that an HSA was the right choice for my family is just part of the story. To fully take advantage of an HSA as an investment vehicle, there are few other things that you and I need to be aware of.
Funds Are Not Automatically Invested
I set aside a specific amount from every paycheck into my HSA. Looking at my account’s details, I see that the balance is currently sitting in an FDIC insured account earning 0.01% interest. If you have an HSA, yours is likely earning something similarly low.
The funds are not automatically invested inside the account, so you have to personally take action if you want your money to be invested somewhere that will allow it to grow faster. Check with your HSA administrator to determine the right kind of investment strategy.
My HSA administrator recommends that people consider using the same investing strategy used for other retirement funds based upon time left until retirement, and risk tolerance.
Investment Choices Very
The choices available for investment through an HSA will vary based upon who manages the account. But for the most part you can use an HSA to invest in mutual funds, stocks, bonds, exchange-traded funds (ETFs), Treasuries and CDs.
In my case, I have access to all of these options so it’s just about choosing the best one for our situation and risk tolerance. Check with your HSA administrator for more information about your specific choices.
Fund Availability is Limited
Funds in the Health Savings Account are available for immediate use. However, money that’s tied up in investments must first be liquidated before they can be used.
Transferring investment assets into the savings account usually takes a business day or two. If you know you’ll incur qualified medical expenses, you can chose to transfer some assets ahead of time. Or you can choose to have a certain amount of funds available in the savings account for immediate use at all times.
Health Savings Accounts can be a great tool to not only pay for your health expenses with pre-tax money, but also help grow your money for the future. However, to take full advantage of a Health Savings Account, you have to know all the details, and take action.
How are you investing the money inside your HSA? What tips do you have that are important to know?
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