by WEX Benefits
While health savings accounts (HSAs) can support short-term and emergency needs, HSA participants are increasingly taking advantage of these accounts’ investment potential. In 2021, HSA investment assets grew 45% year-over-year to nearly $35 billion.
In our second Benefits Buzz podcast episode of our open enrollment series, we’re taking a deeper look at HSA investing. Zach Hanson of our sales team, who has been an HSA participant for over 10 years, shares how he has grown his HSA funds by 7 to 8 percent year-over-year.
Developing your investment strategy
When it comes to HSA investing, your goal is likely to grow your funds as much as possible. Doing so requires developing an HSA investment strategy to use as a guideline. Zach’s strategy includes:
- Growing your HSA enough to cover your deductible and invest the rest.
- Leveraging employer-matching contributions to grow your funds.
- Treating your HSA like an investment account and only spending your funds when you need to.
- Exploring a target date fund (TDF) to help take the guesswork out of investing and saving for retirement.
It’s important to focus on the long-term return from the stock market, not just a small period of time. The decision on where and how to invest your HSA funds requires some thought and assessment of risk.
Setting up a TDF can help you properly assess the risks associated with investing and retiring. By choosing a TDF that is closest to the year you anticipate retiring, the fund is able to focus on high-risk investments with a high return when your date is far out and adjusts to low risk investments as you get closer to retiring. TDFs provide simple investment solutions through tracking the stock market while also diversifying your portfolio.
When you trust your retirement savings to a target date fund, you don’t have to spend time researching and managing different investments. To further assess the risk of your investments and the stock market seek professional financial advice, stay up to date on trends, and utilize the resources within your investment tool.
Paying yourself back later
It can be challenging to decide how to approach medical expenses when you also would like to grow and invest with your HSA.
Regarding his strategy, Zach said, “Right away at the beginning of growing my HSA, I made sure I had enough to cover my deductible readily available in case a major medical expense did arise.”
As long as you save your receipts, you can reimburse yourself for past transactions. So you can contribute money into your HSA, let it grow over time, then take a lump-sum distribution in the future that can put money back in your pocket tax-free.
The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers.
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