Three things you should know about HSAs - Part 2: Growing your HSA funds

Note: This is the second of a 3-part series of blog posts. A previous blog post discussed contributing to an HSA, and a subsequent post will discuss distributing (or spending) HSA funds.

Since 2003, when they were created, millions of Americans have taken advantage of health savings accounts (HSAs) to save money for healthcare expenses and retirement.

One major advantage of an HSA is that accountholders can grow their HSA funds tax-free.¹ And because HSA funds roll over every year, those funds can grow all the way into retirement, saving a lot of money in taxes over time.

Below are three basic ways HSA owners can grow their funds:

1. Contribute the maximum annual amount each year

The easiest way to grow funds in your HSA is to simply contribute to it. This can be done through tax-free payroll deductions, employer matches and, in some cases, participating in company wellness programs where dollars are contributed into the HSA based on defined activities.

For 2018, the total, maximum contribution amounts are $3,450 for individuals and $6,900 for a family. (Accountholders age 55 or older can contribute an additional $1,000 annually.)

2. Earn interest on HSA funds

Accountholders can also earn interest on funds in their HSA. The interest rate depends on the HSA provider, so that is something to research before deciding which HSA provider to choose.

3. Invest HSA dollars

Many HSA providers offer the option to invest your funds once you have a minimum balance in your HSA.² Investments are not without risk, so it is important to talk to a financial advisor about your investment options. It’s also important to review an HSA provider’s investment options as well as the fees they charge. 

A Devenir Research report indicated that, as of the end of 2017, only about 4% of accountholders invested their HSA funds, but they held more than 26% of HSA assets in the market overall. In addition, investing accountholders had an average total balance of $16,457 in their HSA, which is 8.6 times more than non-investors.³  

Conclusion

Growing the funds in an HSA is an important part of saving money for healthcare expenses or for retirement. Any increase in the funds, either through contributions, interest or investing, is not taxable,¹ so accountholders may want to explore all three options to take full advantage of the tax savings available.

¹ HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state's specific rules.

² Investments available to HSA holders are subject to risk, including the possible loss of principal invested and are not FDIC-insured or guaranteed by HealthEquity, Inc.

³ Devenir Research, 2017 Year-End HSA Market Statistics & Trends 

^{Nothing in this communication is intended as legal, tax, financial, or medical advice. Always consult a professional when making life-changing decisions.}