HSA Funds — Should You Keep or Invest?

A health savings account can help you save for your healthcare expenses and offer tax benefits. If you have funds sitting in your HSA, you may wonder whether you should keep the money in your account or invest in another asset for potential savings growth.

Below, we'll cover more about keeping or investing HSA funds, including the advantages and risks, your potential investment options and current limits.

Can You Invest Your HSA?

With an HSA, you have the flexibility to invest your savings into various vehicles, such as stocks, bonds and mutual funds. Remember that some HSA providers may not offer these options. Contact your HSA provider or administrator to confirm whether you can invest your HSA and what choices may be available.

Benefits and Risks of Investing Your HSA

While investing your HSA funds can offer several benefits, you should consider some risks before moving forward.

Pros of Investing Your HSA

What are the advantages of investing the funds from your HSA?

• Grow your savings: When you invest the funds from your account, you may get the opportunity to grow your savings in the long term. Depending on your HSA, you might invest in assets like stocks and mutual funds, which could earn returns that surpass inflation and help your funds grow.
• Gain tax advantages: As with your usual HSA contributions, you can get tax-free investment earnings within your HSA. Capital gains, interest and dividends that your investments generate will not be subject to income tax, so you can grow your money tax-free and your funds can compound more easily.
• Supplement your retirement funds: Some years, you may reach the contribution limit on your other retirement investment accounts, such as IRAs and 401(k)s. In this case, you can invest your HSA funds to further save for retirement. You can use your HSA funds to cover qualifying medical costs at any age, and once you're older than 65, you can make HSA withdrawals for non-medical expenses without paying a penalty.

Cons of Investing Your HSA

There are also downsides to investing the funds from your HSA.

• You may lose money: As with any investment, you risk losing your money due to market volatility and economic downturn. Temporary drops in value could impact your savings. Depending on your time horizon and risk tolerance, you may not be willing to invest your HSA funds. However, you could mitigate your losses by diversifying your investments.
• You may pay fees: Your HSA provider may charge transaction, management and account fees for investing your funds. Before you proceed with investing, consider the potential impact of these fees and weigh the costs against the potential returns.
• Your funds may be inaccessible: When you invest your HSA funds, you may pay a penalty for accessing your funds. Investing tends to mean a long-term commitment, so if you need money for a medical expense, investing your HSA may not be ideal.

HSA Investment Options

Depending on your HSA, you could invest in the following vehicles.

• Bonds: Bonds might be one of the investment options for your HSA. Bonds are funds issued by corporations or governments with the goal to generate income via interest payments.
• Stocks: You may also be able to invest in stocks and exchange-traded funds with your HSA. When you invest in stocks, you own shares of an individual company and can increase your savings as the company grows.
• Mutual funds: Your HSA provider could offer you the option to invest in mutual funds. Doing so can be an excellent way to diversify your portfolio, potentially increasing your returns and minimizing your risk.
• Money market funds: With money market funds, you could invest in low-risk, short-term securities like commercial paper and treasury bills. Money market funds can offer liquidity and stability while generating returns.
• Certificates of Deposit: You may also have the option to invest in a CD with your HSA. These time deposits come with maturity dates and fixed interest rates, which can be highly stable. However, CDs may also have lower returns than other investment vehicles.

HSA Investment Limits 2023

The IRS sets contribution limits for HSAs that adjust for inflation each year. The current contribution limits for an HSA are $3,850 for self-only coverage and $7,750 for family coverage. If you are at least 55, you can also make a catch-up contribution of $1,000.

You may need to enroll in a high-deductible health plan to open and contribute to an HSA. Though you'll pay a higher deductible for this plan, you'll have a lower monthly premium. For self-only coverage, the current deductible for an HDHP should be a minimum of $1,500, while the deductible for family coverage should be no lower than $3,000.

Though there are limits on how much you can invest in your HSA each year, the advantages of tax-free HSA investment withdrawals, contributions and growth still make this account a worthwhile investment. Use an HSA investment calculator to crunch the numbers.

Contact Us to Learn More About Best HSA Investment Funds

When deciding whether you want to keep or invest your HSA, carefully consider your unique financial goals and circumstances. Both options come with advantages and disadvantages. If you keep your funds in your HSA, your money will be immediately accessible when you need it. However, investing your funds can grow your savings, which can make covering your future medical expenses even more affordable. Weigh the risks against the rewards to determine which is the right decision for you.

At The Difference Card, we help organizations develop cost-effective health plans. We have delivered millions in savings to our clients while providing a high level of employee benefits. When you choose a Difference Card HSA, you can enjoy the following:

• Triple tax advantage
• Tax-free interest earned
• Tax-free qualified contributions and distributions

If you want to provide health insurance savings without reducing employee benefits, contact us at The Difference Card today. See the difference when you choose us.