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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.

Kate Dore

Kate Dore

Kate Dore is a Nashville-based freelance personal finance writer and Candidate for Certified Financial Planner™ Certification. She teaches financial literacy with Junior Achievement and serves as Director of Public Relations for the Financial Planning Association of Middle Tennessee. Her work has been published in Business Insider, Financial Planning Magazine, and Simple Money Magazine.

piggy bank on pink background


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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.

Benefits of HSA employer matching

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.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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