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Investing vs. Saving: What is the smarter strategy for HSAs?
Kate Dore · October 17, 2019 · 3 min read
When you have a high-deductible health plan, out-of-pocket expenses are the norm. It's tough to predict when you will receive a bill and estimating the cost may feel impossible. Luckily, you may qualify for a health savings account, or HSA, to cut back on expenses.
HSAs are an excellent way to save on the short-term costs of healthcare. You can also invest the money to build a tax-free nest egg for retirement. It's not easy to decide between saving and investing. If you're struggling to make the choice for your family, here's what you need to know.
The tax benefits of a health savings account (HSA)
If you have a high-deductible health plan, it's worth the time to see if your plan qualifies for an HSA. These accounts are portable and the money is yours for life. HSAs are like the unicorn of the tax world—offering three different ways to save.
First, you can deposit money into your account before taxes. If you invest the money, your earnings grow tax-free. You can withdraw the money anytime, tax and penalty-free, for qualified medical expenses. You can find out what the IRS considers a “qualified medical expenses” here. If you're still not sure, don't be afraid to speak with a tax professional.
Should you keep your HSA money in cash?
If you're looking for flexibility, you may prefer to keep your HSA money in cash. With a high-deductible health plan, you may receive unexpected medical bills. By keeping your HSA money in cash, you can easily access it as needed. This could be handy if you are expecting a major medical expense—like surgery or another costly procedure.
The biggest downside of keeping your money in cash is the missed opportunity for growth. Your money could be earning interest, and by leaving it in cash, it may not keep pace with inflation. As the cost of living gets more expensive, your money’s purchasing power declines. The longer your money is stagnant, the more purchasing power you have to lose.
Should you invest your HSA money?
Are you hesitant to invest HSA money? You're far from alone. According to a recent report, 95 percent of HSA account holders keep their money in cash. While it's easy to see the appeal of the quick access to cash, you could be missing out on major growth potential.
With a few keystrokes on our Future Growth Calculator, you can see the power of investing over time. For example, if you start from scratch and contribute $3,500 every year, you may wind up with almost $200,000 after 30 years. This assumes you earn a four percent return on your money. This extra money could go a long way in paying for healthcare expenses in retirement.
Best of all, you can withdraw the money for qualified medical expenses without paying extra taxes or fees.
Think about the big picture
Before you decide to save or invest, think about your family's needs. Both your current and future money goals matter. It's tough to argue against investing, but you shouldn't bypass your other priorities to do it.
If you're struggling to make ends meet, it may be better to skip a high-deductible health plan for now. You won't qualify to contribute to an HSA, but it may be easier to plan for out-of-pocket medical expenses. If you are stuck with your company’s high-deductible plan, you may prefer to keep your HSA in cash for your family’s short-term needs.
Benefits
2024 and 2025 HSA Maximum Contribution Limits
Lively · May 9, 2024 · 3 min read
On May 9, 2024 the Internal Revenue Service announced the HSA contribution limits for 2025. For 2025 HSA-eligible account holders are allowed to contribute: $4,300 for individual coverage and $8,500 for family coverage. If you are 55 years or older, you’re still eligible to contribute an extra $1,000 catch-up contribution.
Benefits
What is the Difference Between a Flexible Spending Account and a Health Savings Account?
Lauren Hargrave · February 9, 2024 · 12 min read
A Health Savings Account (HSA) and Healthcare Flexible Spending Account (FSA) provide up to 30% savings on out-of-pocket healthcare expenses. That’s good news. Except you can’t contribute to an HSA and Healthcare FSA at the same time. So what if your employer offers both benefits? How do you choose which account type is best for you? Let’s explore the advantages of each to help you decide which wins in HSA vs FSA.
Health Savings Accounts
Ways Health Savings Account Matching Benefits Employers
Lauren Hargrave · October 13, 2023 · 7 min read
Employers need employees to adopt and engage with their benefits and one way to encourage employees to adopt and contribute to (i.e. engage with) an HSA, is for employers to match employees’ contributions.
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