Health Savings Account Investment: A Smart Financial Move

A Health Savings Account (HSA) is a triple tax-advantaged savings account that allows you to set aside money for medical expenses. It's a smart financial move for those who qualify.

You can invest your HSA funds in a variety of assets, including stocks, bonds, and mutual funds. This can help your money grow over time.

Having an HSA can save you thousands of dollars in taxes, according to experts.

Worth a look: Blocked Funds

An HSA, or health savings account, is a special savings account that helps pay for out-of-pocket medical expenses if you have a high-deductible health insurance plan.

In 2024, the minimum deductible for an HDHP, or high-deductible health plan, is $1,600 for an individual and $3,200 for a family.

HSAs come with a triple tax benefit that makes them attractive savings options.

Contributions to HSAs are tax deductible, with individuals able to contribute up to $4,150 in 2024 and families able to put in up to $8,300.

Related reading: What Currency Does Iceland Use 2024

Those aged 55 and older can contribute an additional $1,000 as a catch-up contribution.

Any earnings on the account remain tax-free as long as the money is used for qualified medical expenses.

Here are the tax benefits of an HSA:

If you spend your HSA money on non-qualified expenses, you'll be charged a 20 percent bonus penalty in addition to income taxes on the withdrawal.

However, once you reach age 65, the bonus penalty disappears, and you can withdraw HSA funds for any reason, paying ordinary income tax on the withdrawal.

Recommended read: Saving Account Limit

An HSA can be a great way to save for long-term health care needs and financial goals, and investing your HSA dollars can help it grow even faster.

Investing your HSA dollars has many potential tax benefits and can be an additional way to save for long-term health care needs and financial goals.

According to a report from the Employee Benefits Research Institute, in 2022, just 13 percent of HSAs were invested. This is surprising, considering the benefits of investing HSA funds.

You might enjoy: American Innovation Dollars

You can invest your HSA dollars in self-directed mutual funds or through a service like Betterment, which will recommend a personalized portfolio of low-cost exchange traded funds or ETF's.

Investing in your HSA can help it grow faster, potentially more than doubling your balance over time. For example, an HSA account holder who contributes $6,000 each year and saves it all can have $120,000 in 20 years, but by investing that same amount, earning 7% with investments, and saving it all, the account could potentially more than double to $263,190* in the same amount of time.

Investing your HSA dollars can also help you take advantage of the account's tax-free deposits, tax-free earnings, and tax-free withdrawals.

Here are some key benefits of investing your HSA:

Investing your HSA dollars can play a significant role in your overall wealth and retirement strategy, potentially growing your savings and helping you save for long-term health care needs.

Investing with an HSA can be a smart long-term investment vehicle, allowing you to invest a portion of your HSA dollars and potentially grow your savings. Contributions to your HSA and potential investment earnings are income tax-free.

You can choose to invest your HSA dollars in self-directed mutual funds, with over 30 mutual funds available, including life stage funds that average a four-star Morningstar rating and have some of the lowest expense ratios in the industry.

Betterment helps take the guesswork out of investing your HSA, recommending a personalized portfolio of low-cost exchange traded funds or ETFs and keeping your HSA investment on track through auto deposits and automated rebalancing.

If you choose self-directed mutual funds, the asset allocation calculator can help you decide which funds are right for you. If you choose Betterment, you'll answer a few questions and Betterment will create a customized portfolio to suit your needs.

If an unexpected medical expense comes up, you can easily transfer your investment funds back into your HSA to pay for them.

Here are some options to consider when investing your HSA:

UMB Investment Management takes the guesswork out of mutual fund selection by vetting mutual funds in various asset classes for inclusion in the UMB HSA Saver Investment Program. UMB has been a trusted provider of experienced investment services since 1927.

The UMB HSA Saver Investment Portfolio has been designed to provide a simplified approach to your health savings account investments.