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INVESTING
JULY 1, 2019

Can I use my health savings account as an investment account?

Answered by
Roger W. Gray
Director, Health Benefit Solutions at Bank of America
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 through these investments.
If you're saving for future medical costs, investing your HSA balance may provide you with the potential for tax-free growth through these investments.
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 generally free from federal tax — a unique potential triple tax advantage.Footnote 1 Any unused balance in your HSA can be kept from year to year. Distributions for qualified medical expenses are federal tax-free, but unqualified distributions could be subject to federal 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 distributions or directly transfer funds from one HSA to another as needed — an exercise that's not subject to annual contribution limits. However, rollover distributions to another HSA are subject to special timing restrictions and can only be made once every 12 months.

Who can open an HSA?

The primary condition for opening and contributing to an HSA is that you must be enrolled in a qualified high-deductible health plan (HDHP) and cannot have disqualifying additional medical coverage, such as a general purpose health flexible spending account (FSA). To qualify as a HDHP in 2019, your plan must require an annual deductible of $1,350 or more for an individual ($2,700 for a family) 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 $6,750 for an individual ($13,500 for a family) before covering 100% of allowable medical expenses.Footnote 1
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Footnote 1Any interest or earnings on the assets in the HSA are federal tax-free while held in the account. You can receive federal tax-free distributions from your HSA, including distributions of interest or earnings, to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to federal income tax and, if withdrawn before age 65, death, or disability, may be subject to an additional 20% federal tax. You may be able to claim a federal tax deduction for contributions you, or someone other than your employer, make to your HSA. It is recommended that you contact qualified tax or legal counsel before establishing an HSA.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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