I’m in the process of enrolling benefits for a new job. Can someone explain an hsa account and how that money can be invested? Everything I have read says to max out your hsa and invest the unused over portion. How does that work?
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There’s a school of thought that you should use an HSA as a long-term investment account instead of a way to cover some portion of medical expenses on a pre-tax basis. Fully fund it every year and don’t take withdrawals. Let that money sit in an investment account and grow tax-free, and then when you retire, you can use that money to pay medical expenses so that you won’t have to pay taxes on any withdrawals. You can use the account to invest in lots of different funds, and you may have other investment options depending how the account is set up.
This approach assumes you have sufficient income to cover medical expenses without dipping into your HSA for the next several decades. It also disregards the fact that when you pay medical expenses with post tax dollars, you are paying somewhere around 25% premium for those expenses versus using pre-tax dollars. It might make sense to do that because generally medical expenses are low when you’re younger and increase as you age, but it’s worth running the numbers to see how much of a benefit it really is.
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