Reflections

Should You Invest Your Health Savings Account into a Brokerage Account?

By Sean Condon, CFP®

So, you have maxed out your retirement savings with an IRA and 401(k), now what?  The lesser-known health savings account (HSA) might be your answer.  Many investors are unsure of how they can maximize their HSA to protect their health and create a more well-rounded retirement plan.  Here we will explore what makes an HSA different from other retirement savings accounts and who it can help.

What Is a Health Savings Account?

An HSA is a special fund for anyone in a high-deductible health insurance plan (HDHP). For 2021, the deductible sum for employees on an HDHP ranges from $1,400-$7,000 for individuals and $2,800-$14,000 if it also provides for your family.[1]  If qualified, you can open an HSA account at any provider compatible with your insurance, then you deposit contributions into the HSA by deducting a specified amount from your salary (of self-employed income).

A Health Savings Account is a tax‐advantaged account that you can use to pay for current or future IRS‐qualified medical expenses.  Unlike popular Flexible Spending Accounts (FSA), with an HSA there is no “use it or lose it” provision – meaning funds you don’t spend roll over into the following year.  Your HSA also stays with you if you change jobs, so the benefit is not locked to your current employer.  The annual contribution limit is $3,600 for individuals and $7,200 for family coverage, with a $1,000 catch-up addition for those over 50.

Benefits of a Health Savings Account

An HSA provides tax savings in three ways.  Here’s how:

  1. Contributions to your HSA are tax deductible: any HSA contributions reduce taxable income
  2. HSA account interest and investment earnings grow tax-free
  3. When used for IRS-qualified medical expenses, distributions are tax-free

HSA deductions can be made up until your tax filing deadline.  They are “above the line,” meaning they can help you shrink your adjusted gross income or modified AGI before the calendar strikes April 15th.  Notably, there are no income limits and no phase-outs for HSA tax deductions.  This means that HSA contributions can help affluent investors who have been phased-out of tax benefits and minimize their exposure to the 3.8% surtax on net investment income.

Can You Invest Your Health Savings Account into a Brokerage Account?

Smart planners might think of an HSA as a “Medical IRA.”  By investing HSA funds for a later date when you will need to pay for medical costs, you can allow your funds to grow tax free.  To invest in your health savings account, you typically open a specific health savings brokerage account.  The brokerage account links to your HSA and allows you to invest in a variety of stocks, bonds, mutual funds, and ETFs.  You can invest some or all your HSA, allowing you to plan for more near term medical costs or focus on longer term growth and tax savings.

Preparing for medical expenses and other health-related emergencies should be a key part of your comprehensive financial plan.  As retirement approaches, the cost of your health-related needs can be your biggest financial burden.  Saving in a tax-smart manner can leave more of your assets available to fund inevitable health care costs.

Getting Started with a Health Savings Brokerage Account

Choosing to invest in an HSA brokerage account can have a far-reaching effect on how productive and financially rewarding your health savings will be for you down the line.  At Windgate Wealth Management, we know just how to help you achieve affordable healthcare and a reassuring retirement plan by analyzing your peculiar portfolio risks and recommending the best health savings option.

If you want to know what it takes to invest your HSA, you can reach us by calling (844) 377-4963 or emailing windgate@windgatewealth.com for a complimentary consultation.  You can also book an appointment online here.

[1] https://www.healthcare.gov/high-deductible-health-plan/

Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts and does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation and your insurance agent for insurance advice.

Data here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.

First published September 2021.

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