using an HSA to invest

Is It Smart to Use an HSA Account to Invest in Stocks?

Another great Quora question! Is it a good idea to use an HSA (“Health Savings Account”) account to invest in stocks. Here’s a link to that question:

Because this is the only triple tax free vehicle available to individuals in the US tax code (to my knowledge), this becomes a very interesting planning tool if you can take advantage of it.

The person who can mostly likely take advantage – in a hypothetical situation – is a younger person with very low medical expenses. One who can stuff money into the HSA and treat it as a retirement health care expense account. Meaning, use it in retirement, not now.

In retirement, things always pop up – dental work, travel health, maybe a few more expensive diagnostic tests. And maybe more serious expenses like rehab etc. Fidelity among others has done studies on health care expenses and (if you believe them) they project the average retiree will need $225,000 in retirement just to cover health costs.

If that is true, then the easiest way to get 225k is to start young. And to invest in stocks. And have that money available tax-free. Since the HSA contributions are tax deductible, and since the money grows tax deferred and can be used tax-free for qualified medical expenses (term is rather flexible), the HSA can go a long way to making the Fidelity bogey attainable.

Do a Health Care Spending Analysis

If you have higher medical expenses year to year, compare the HSA plan to a lower deductible plan. One key point is that deductible medical expenses are subject to deductibility thresholds. And the expenses get paid post FICA tax. Health plan premiums deducted from your salary are almost always 100% pre-tax. So if your choice is to pay $500 pretax from your salary or pay $250 with potential medical expenses, you may find the higher premium plan is better suited.

I recommend creating a spreadsheet with various health service use scenarios to see what each would cost you under a low and high deductible plan. Then you make an estimate from that on the best plan for you. And determine if using an HSA to invest makes sense for your family.

Hope this was helpful!

further reading:

HSA: Mysteries of The Health Savings Account

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