This might sound obvious but the longer you have had an HSA, the higher your HSA balance is expected to be at year-end.
Show Me The HSA Money
According to the 2017 Year-End Devenir HSA Research Report, at the end of 2017, about 20% of all accounts were unfunded, down from 24% in 2016. This means higher HSA balances in 2018 vs. 2017 and more HSA spending power in 2018.
An HSA is NOT an FSA
A very common misconception is that an HSA operates like an FSA. With an FSA you must forfeit any leftover funds at the end of the calendar or plan year. The case could not be less true for an HSA. Unlike an FSA, with an HSA you can “roll over” funds each year. Your HSA account is a lifetime account. That money can grow each year so you have more dedicated health funds at your fingertips.
Start a Leg Up Next Year
Imagine having more money this year than you did last. This is not some financial pyramid scheme. The more pre-tax dollars you save in your HSA, the more money you are likely to have in your HSA next year. You can use your tax-free HSA money to pay for qualified out-of-pocket medical expenses this year. Any unused HSA funds are automatically saved for qualified out-of-pocket medical expenses next year.
Invest vs. Save Your HSA
The best aspect of having HSA funds in your account at the beginning of each year is increased HSA benefits options. HSA allows for tax-free growth. This means in addition to saving your money tax-free in a cash account, you can also invest your HSA funds. Investing your HSA can help you earmark health savings that you can have for years to come, well into retirement. Before you invest, please consult a financial or tax professional to help you make the best investment decision. Nothing here should be considered investment advice.
HSAs help reduce the real dollar increase of health costs year over year. Having an HSA balance at year-end, means you have more funds available to pay for health expenses next year. It also unlocks key HSA benefits like tax-free investment growth. Maybe this is why more and more HSA account holders had a funded HSA account this year vs. last?
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.