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HSA Investment Strategies

4 min read

30 sec brief

Saving for retirement in a 401(k) or IRA is smart. Investing your HSA funds can be even smarter.

Saving for retirement in a 401(k) or IRA is smart. Investing your HSA funds can be even smarter.

When it comes to building financial security, what you earn is not the end-game. It’s the earnings you get to keep after paying your tax bills that matter most. Even 401(k)s and IRAs, the pillars of retirement investing that deliver valuable tax breaks, hit you with taxes at some point.

HSA Investment Guide

A Health Savings Account (HSA) is the one incredibly valuable exception to the taxation rule.  Money you invest in an HSA will never be taxed if you use it to pay for approved medical expenses. What you earn in an HSA is what you get to keep. No. Taxes. Period.

That makes your HSA a potentially more valuable retirement account than your 401(k) or IRA.

Consider these five steps to build an HSA investing strategy.

Use regular savings to cover your current out of pocket medical expenses. If you have a solid emergency savings fund or sufficient cash-flow to pay for medical expenses not covered by your health insurance plan (hello, co-pays and co-insurance) you can use your HSA not as a health account for today, but a retirement account for tomorrow.

Max out on your HSA contributions.  Contribute as much as you are allowed this year into  Invest the money for the long-term and the compounded growth of that money over decades can mean you will land at retirement with a six-figure HSA balance you can use tax free to cover medical bills. (If you plan to pull money out of a Traditional 401(k) or Traditional IRA to cover those retirement medical expenses, your withdrawals are going to be taxed as ordinary income.)

Invest for your future self Chances are you’ve been using your HSA account as a savings account. if your HSA is now your new stealth retirement account, you want to get that money invested for long-term growth, just like your 401(k) or IRA.

You can transfer your Lively HSA account balance into a TD Ameritrade account and then invest that money in stocks and bonds  You can also set up an automatic system to have future HSA contributions funneled off to your TD Ameritrade investment account. 

Follow the same investing strategy as with your 401(k) and IRA. It’s up to you to decide how much you want to invest in stocks. Over long stretches, stocks have the ability to deliver the best inflation-besting returns. But you also need to have the stomach to ride out periods when stocks slide. If you’ve already thought through your appetite for risk and have an asset allocation strategy that mixes stocks and bonds for your 401(k) or IRA accounts, you can plug that investing strategy into your HSA.

You can also use online tools to help you figure out the right mix. Search for “retirement asset allocation tool.”

Invest in a Diversified Portfolio of Stocks and Bonds. Mutual funds and exchange traded funds (ETFs) are the easiest way to instantly build a portfolio of hundreds of different securities. TD Ameritrade offers a lineup of funds and ETFs that you can buy and sell without any sales commission. Choosing funds or ETFs that charge low annual expense ratios means you will keep even more of what your investments earn.

If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered 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 investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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.

About the author

Carla Fried

Carla translates business and personal finance concepts into engaging content that helps individuals make more confident choices in how they manage their money. Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.

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