Health Savings Accounts (HSAs) offer valuable tax advantages and potential for wealth accumulation, but many account holders underutilize them as investment vehicles. An HSA is a tax-advantaged savings account that individuals with high-deductible health insurance plans can use to set aside pre-tax funds for qualified medical expenses. HSAs offer tax deductions on contributions, tax-free growth on investments within the account, and tax-free withdrawals when used for eligible healthcare costs. These accounts provide a flexible and efficient way to cover medical expenses and save for future healthcare needs, including those in retirement, with the added benefit of funds rolling over from year to year.
Morningstar’s annual “landscape study” on Health Savings Accounts (HSAs) revealed that while fees associated with HSAs are declining, a significant portion of account holders isn’t utilizing their HSAs as investment vehicles, despite the tax advantages they offer. The study reported that the total assets in HSAs have grown to $116 billion, and there are now 21 times more assets in HSAs compared to 2006.
While seven of the top 10 HSA providers have kept fees low and offer “above-average” investment menus, only 18% of HSA participants are using them as investment accounts. Experts suggest that the financial industry should raise awareness and provide education about the potential of HSAs as investment and wealth accumulation tools, similar to the way 401(k)s are utilized in retirement planning. Fidelity Investments received a “high” assessment for its HSAs, but there is still room for improvement in the utilization of HSAs for investing, and financial advisors can play a crucial role in incorporating HSAs into the broader financial planning conversation. The study emphasizes the need for greater awareness and understanding of HSAs’ potential for wealth accumulation.
For more on this, visit this week’s episode of 401(k) Real Talk where Fred Barstein lists this story on his most interesting/important stories of the week.
