Your Hsa Contributions Are Never Taxed
An HSA is funded with pre-tax dollars, whether you make contributions or your employer does so on your behalf. If you fund the account on your own, you claim total annual contributions as a deduction on your taxes . If an employer makes your contributions, theyre deducted from your paycheck before taxes are taken out.
You can make tax-deductible contributions to an HSA at any time during the year, even up to April 15 for the previous tax year.
You can make tax-deductible contributions to an HSA at any time during the year, even up to April 15 for the previous tax year. You can contribute even if youre retired, unemployed, or have annual income less than your contributions. And youre never required to make HSA contributions.
For 2018, you or your employer can contribute a total of up to $3,450 to an HSA if you have insurance just for yourself, or $6,900 if you have a family plan.
If youre age 55 or older you or your employer can contribute an additional $1,000 to an HSA when you have either an individual or a family health plan.
Weigh The Benefits And Costs Of Investing The Money In Your Hsa Rather Than Immediately Spending It Learn Strategies For Deciding The Best Option For You
One important choice that Americans have related to their health and their money is whether to set up a health savings account . These accounts don’t just provide a way to cover your health expenses they can also be attractive investment vehicles.
But investing in HSA funds isn’t for everyone. Here’s what you need to know about the ins and outs of investing HSA money to be able to make the best decision for your personal situation.
What Happens To Invested Hsa Funds In Retirement
When you reach age 65, you can withdraw the remaining funds in your HSA for nonqualifying expenses without penalties. You would simply pay tax on the earnings like other retirement accounts that use pretax dollars.
If you need medical care in retirement, you can withdraw the funds and still take the triple tax advantage. Using your HSA as an investment vehicle for medical savings is one way to help make sure you have enough cash earmarked for medical care later in life.
If you have an HSA, consider its potential beyond short-term savings. As an investment option, your HSA can help you grow funds for both medical needs and retirement with some great tax advantages.
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How To Invest The Money In Your Hsa
Most people treat a health savings account like any other savings account that holds money until they need it. But HSAs can be a valuable option for investing beyond your health needs. You can take advantage of your HSA by investing in your choice of stocks, bonds, ETFs and mutual funds to better fund your retirement or later medical care.
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What Exactly Is A High
With a HDHP, youll bare the brunt of your medical costs until your deductible is met. Generally, these plans have much higher annual deductibles than traditional insurance plans.
However, the premiums you pay your insurance provider tend to be much lower each month. After all, youll be responsible for healthcare costs until you meet your deductible rather than just having a small copay.
In order to be a qualified plan, the annual deductible must be $1,400 for singles and $2,800 for families in 2020. Once you reach your deductible, insurance begins covering a percentage of your medical expenses.
HDHPs also have another appealing feature. Qualified HDHPs have a limit to the total medical costs you will face in a given year. In 2020, the total out-of-pocket maximums for singles cannot exceed $6,900. For families, maximum costs cant exceed $13,800 according to Healthcare.gov.
This means your financial risk is capped at the out-of-pocket maximum. Your out-of-pocket max shields you from catastrophic financial burdens due to extended hospital stays, costly medication, or chronic conditions that can take a toll on your budget.
How To Invest With Your Hsa And Why
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Its hard enough to motivate yourself to save for retirement, but saving for your future medical costs? How responsible does a person have to be?
Thankfully, health savings accounts, or HSAs, are tools that make saving for future health-related expenses less painful. These accounts allow you to save money, but they also allow you to invest. With open enrollment coming up, an HSA might be something to consider.
One cool trick is to invest the money in an HSA just like you invest in your IRA, Victor Medina, a certified financial planner and founder of Palante Wealth Advisors in Pennington, New Jersey, said in an email interview.
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Consider These Reasons For Saving:
- When you use HSA funds for qualified medical expenses, you dont pay taxes. The money you contribute to your account, any earnings and any withdrawals for qualified expenses — all are tax-free. These tax advantages can make for compelling reasons to save in your HSA.
- Think about your health care costs in retirement. These could be anywhere from $144,000 to $163,000 to pay for your health care if you are single, and about $301,000 if you are married.1 The sooner you start saving in your HSA, and emphasizing saving over spending, chance are the more you’ll have to cover your medical needs in retirement.
- Your HSA can be an investment tool. An HSA parked solely in cash to cover short term needs will only keep you focused on the here and now. By putting your HSA dollars to work by investing them, youll have a chance to grow your account over the long term. And dont worry, if you ever need money for current medical expenses, your HSA funds are always accessible
- You can take it with you. If you change jobs or retire, your HSA moves with you.
Choose What’s Best For You
After reviewing the pros and cons of investing your HSA balance, it’s important to review your financial plans and make the best decision for you and your family.
Consider these questions as you plan:
- Do I need to use my HSA funds in the near future?
- How much time do I have to grow my HSA if I choose to invest it?
- Can I weather any storms the market may face if I choose to invest my contributions?
- What growth could I expect to see if I choose to invest?
The answers to these questions may help you make the best decision for your family.
This blog is up to date as of January 2020 and has not been updated for changes in the law, administration or current event.
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Should You Invest Your Hsa Balance
Now that we have the basics of a HDHP + HSA, lets dive into whether growing your money in the market makes sense.
After you analyze your insurance and investment options, you may have a better understanding of the risk vs. reward in having a HDHP + HSA. However, if youre still unsure, talk to a fee-only financial advisor. This is a prudent step to take as you navigate the complexities of insurance and investing.
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How To Estimate A Cash Target
How do you feel about paying for your health care expenses today? Are you comfortable writing a check for a $200 office visit or a $75 prescription, but would want to ensure you have immediate access to cash in your HSA if you incur a bill that is, say, $500? The cash target you set will depend on a combination of your expected expenses and your comfort in handling both these billsand those you don’t expect.
A cash target isn’t a pot of money you collect and then never touch. Instead, you may be using the cash in your HSA to pay for current qualified medical expenses and replenishing it with new contributions.
Everyone’s target is different. It depends on your expectations for spending on health care, as well as your ability to absorb a large, unexpected medical expense, potentially using other personal savings to cover any gap.
These steps can help you understand your needs and how to prepare for the unexpected.
How To Invest Hsa Funds Strategically
For those who choose to invest their HSA funds, here are a few ways to invest strategically:
- Make sure you take full advantage of any employer matching contributions. This will give you more money to use on qualified medical expenses and potentially free up more funds you can use to invest.
- Contribute the maximum amount allowed to your HSA. For 2021, the maximum contribution limits are $3,600 for an individual and $7,200 for families. Individuals ages 55 and older can contribute an additional $1,000.
- Consider how close you are to retirement as you decide on your HSA investments. If you have decades before you’ll retire, you might consider adding more aggressive mutual funds, ETFs, or stocks. If you’re only a few years from retiring, you’ll probably want to consider investing in less volatile alternatives such as bonds and dividend stocks.
- Think of your HSA as a key component of your overall retirement strategy. Try to invest as much of your HSA money as possible while ensuring that you keep enough cash to cover your qualified medical expenses. Consider where your other retirement plans are invested as well to make sure that your HSA investments provide diversification.
Of course, some individuals might determine that the best strategy for their HSA money is to not invest at all. Whether or not to invest HSA funds and how to invest those funds are decisions that only you can make for yourself and your family.
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Check With Your Hsa Administrator
If you have a HSA already like say, through your employers health plan you can contact your HSA administrator or provider to learn more about your investment options.
Depending on your provider, you may be able to choose and manage your own investments through a self-directed account.
More of a hands-off type? Some HSA providers also offer managed accounts with pre-selected investment funds you can choose from. You can decide how you want your money to be allocated based on your .
Some accounts may also give you the option to sign up for automatic rebalancing so that your portfolio stays within your original .
Investing Through An Hsa
Think of your HSA as a home for your medical money. Just like a brokerage account or an IRA, youll need to put money into the account before you buy investments. Then, after you fund the account, you can start investing.
Some HSAs offer tools that help you choose your investments and provide automatic rebalancing, so your portfolio stays within your preferred allocation. Others allow you to select from specific investments, such as stocks, bonds, mutual funds and ETFs.
Whatever method you choose, investing your money through an HSA will likely allow it to grow faster than by saving alone. However, if your HSA is offered through an employer, you may have fewer options for how you can invest your money.
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Can You Invest Your Hsa Money
Many HSA administrators require a minimum balance in your account before allowing you to invest, so it’s possible you cannot. Check with your HSA administrator to find out if there’s a minimum balance required for your HSA before you can invest. Keep in mind, though, that just because you can invest your HSA money doesn’t mean that you necessarily should.
Should You Invest Your Hsa
Category: Reimbursement Accounts
So, you have a Health Savings Account , now what? While these accounts are similar to Flexible Spending Accounts , one of the main differences between an HSA and an FSA is that you may be able to invest your HSA contributions.
Learn more about the pros and cons of investing your HSA, and why this may be a beneficial strategy to consider for your overall financial wellness.
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Help Manage Your Tax Bills In Retirement
If youve been doing a lot of your retirement savings in traditional 401s and IRAs, you need to plan for the reality that whenever you make withdrawals in retirement, every dollar you take out will count as taxable income.
This is where an HSA shines bright. Withdrawals for qualified medical expenses will be 100% tax-free.
For example, lets say one year in retirement you run into an illness that generates $15,000 in expenses not covered by Medicare. If you intend to pay those bills from a traditional retirement account, you will owe tax on the withdrawal. That not only will require withdrawing more than $15,000 to cover the tax and pay your medical bills, but it could bump you into a higher tax bracket.
Keep in mind that even if you intend to treat your HSA as a long-term savings/investing account, you always have the freedom to tap into it at any time, even if youre no longer eligible to contribute to your HSA.
# 7 Mandatory Spending
HSA dollars are best spent by the contributor and spouse during life as the HSA rules do not provide significant estate planning benefits. If inherited by your spouse, the account remains an HSA. If inherited by anyone else, every dollar in the HSA becomes fully taxable income to your heir in the year of your death.
I hope my health insurance covers camel-transmitted diseases.
Unlike most retirement accounts, HSAs do not enjoy particularly robust asset protection benefits. Although case law is far from settled, HSA dollars are generally included in your bankruptcy estate. A few states, however, do provide an exemption for HSAs. Hopefully, that list will continue to grow.
Since the estate planning and asset protection benefits of HSAs are weak, these accounts are best spent during your lifetime. Given the rapid rise in health care costs, that should not be too difficult for most.
In many respects, Health Savings Accounts are the best investment account available to an investor and perhaps the first place to invest each year. HSAs have superior tax protection features compared to any other investment account including their triple-tax-free nature, the ability to withdraw the money after 65 for any purpose penalty-free, and the ability to delay withdrawals while saving receipts. If you are using an HDHP, be sure to take advantage of investing in an HSA.
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What To Expect After You Enroll:
- If you currently have a Pinnacle Bank HSA Account with a balance of at least $1,000, you are eligible to enroll in the HSA Investment Platform by completing the enrollment form using the link below.
- Within two business days you will receive an email with instructions for establishing your password.
- Once you log in to your HSA Investment account, you will be able to establish your future investment elections.
- You can initiate a transfer from your HSA to your Investment account by visiting the Move Money menu option in your HSA investment portal.
- Once you make a transfer from your HSA to your Investment account, the funds can take 3-4 days to post to your account. Remember to maintain at least the minimum balance in your HSA Account to avoid any applicable service charge.
- Should you choose to transfer money from your Investment account back to your HSA, the funds can take 2-3 days to be received into your checking account. Liquidations from your investment account for distributions will be liquidated proportionally based on your current investment alignments.
- A $30.00 fee will be deducted from your HSA Investment Account at opening and then assessed annually thereafter.