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INVESTING
September 1, 2018

Can I Use My Health Savings Account As an Investment Account?

Answered by
Roger W. Gray
Director, Health Benefit Solutions at Bank of America Merrill Lynch
You certainly can. "Should you?" is another question. Whether or not it makes sense for you to use your health savings account (HSA) as an investment account depends on your personal goals:
  • If you plan to use the account to pay for everyday health expenses in the short term, you may want to keep the funds in cash.
  • If you're saving for future medical costs, investing a portion of your HSA may provide you with the potential for tax-free growth.
If you're saving for future medical costs, investing your HSA balance may provide you with the potential for tax-free growth.
An HSA's primary purpose is to help you pay for out-of-pocket medical expenses. "Contributions, investment gains and withdrawals for qualified medical expenses are all free from federal tax — a unique potential triple tax advantage," says Roger W. Gray, Director, Health Benefit Solutions at Bank of America Merrill Lynch. Any unused balance in your HSA can be kept from year to year. Distributions for qualified medical expenses are tax-free, but unqualified distributions could be subject to income tax and an additional 20% tax, unless an exception applies.

What sort of investment choices do HSAs typically offer?

Whether your HSA is offered by your employer or you've opened one on your own, you might have several options for investing your funds, typically after you have contributed at least $1,000. Some HSAs function as savings accounts only, while others allow you to invest your contributions in mutual funds, stocks and/or bonds.

Can I transfer funds from my HSA to an IRA?

No, HSA to IRA transfers are not allowed, however you can transfer IRA funds into your HSA if you are still eligible to make HSA contributions. But it's important to note that you can only make this transfer once in your lifetime, and the amount you transfer cannot exceed the applicable maximum HSA contribution limit for that year (including any regular contributions you've already made). You can also roll over funds from one HSA to another as needed; an exercise that's not subject to annual contribution limits.

Who can open an HSA?

To open an HSA, you must be enrolled in a qualified high-deductible health plan (HDHP) and cannot be enrolled in another health plan that is not an HDHP and provides coverage for benefits covered by the HDHP, except for certain permitted insurance. To qualify as high-deductible in 2018, your plan must require an annual deductible of $1,350 or more for an individual ($2,700 for a family) before covering 100% of allowable medical expenses (with the exception of certain preventive care expenses). In addition, the plan's annual out-of-pocket maximum (including the deductible) must be no more than $6,650 for an individual ($13,300 for a family).Footnote 1
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