Signing Up for an H.S.A.? First Figure Out How You’ll Use the Money


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The number of health savings accounts continues to grow, but figuring out which plan will work for you may depend on how you will use the money, a new analysis finds.

Do you intend to use it for current medical expenses or to save the money and invest it for future costs, perhaps in retirement — as if it were a 401(k) for health care?

Money contributed to H.S.A.s, which are available to people who have specific types of high-deductible health insurance, is tax free, grows tax free and is withdrawn tax free for spending on eligible expenses. Unlike other types of health accounts, H.S.A.s have no spending deadline. (You can also spend the savings on anything you want after age 65 without penalty; you just pay regular income tax if you spend it on noneligible expenses.) And they follow you if you change jobs.

Depending on your objective, some accounts may work better than others, according to Morningstar, the investment research firm.

Morningstar analyzed 11 providers that make accounts available to individual savers, covering about 60 percent of the market. (The review didn’t include accounts offered through employers, since fees for workplace accounts vary widely, making comparisons difficult.) Over all, account fees have decreased and investment options have improved, the report found. But some H.S.A. providers still make it hard to find relevant details on their websites, like the interest rates paid on accounts.

Even though the accounts offer the potential for long-term investment, the vast majority of H.S.A. holders use the funds to pay current medical costs and hold the money in cash spending accounts. Just 4 percent of all accounts, or about one million, have at least part of the money invested, according to the H.S.A. services firm Devenir.

Some people may not invest because they don’t know they have the option, said Roy Ramthun, an H.S.A. consultant. He said people continue to confuse H.S.A.s with flexible health spending accounts, which aren’t portable and generally must be used before a deadline.

Another likely reason, however, is that H.S.A. holders need the funds to pay for ongoing medical costs, said Leo Acheson, associate director of multiasset and alternative strategies at Morningstar.

“A lot of people don’t have the financial means to set aside money for the future,” he said.

People who need to use their H.S.A. money now, Mr. Acheson said, should look for accounts with no or low maintenance and add-on fees, reasonable interest rates and Federal Deposit Insurance Corporation insurance. Morningstar’s top individual accounts for spenders, based on those criteria, include Fidelity, a relative newcomer to retail H.S.A.s; Lively, a start-up; and the H.S.A. Authority.

H.S.A.s used for investing should offer low fees for all investments, limit overlap among investment options and avoid “thresholds” that force investors to keep some money in a checking account before they can invest, Morningstar said.

Fidelity also topped Morningstar’s list of best accounts for investors. The H.S.A. Authority ranked second, followed by Bank of America.

Lively wasn’t considered for the investment category, Morningstar said, because it doesn’t offer a curated menu of H.S.A. investments. Instead, it offers access to a brokerage option, which provides a vast array of investment choices.

A brokerage window, as it’s sometimes called, can be a boon for sophisticated investors who want to create their own investment mix. But less savvy investors can become paralyzed by too much choice, Mr. Acheson said.

Fidelity’s H.S.A. offers a brokerage window because many investors want the option to choose other investments, said Begonya Klumb, head of H.S.A.s at Fidelity. But it also presents a list of suggested H.S.A. investment options, as well as online tools, to help less experienced investors, she said.

There were about 26 million H.S.A.s holding about $61.7 billion as of midyear, according to Devenir.

Devenir offers a search tool,, to help shoppers compare accounts. But visit each plan’s website before making a selection to make sure you have the latest details, like current interest rates.

H.S.A.s can be used for a variety of health and medical expenses, including dental care. The HSA Bank offers a summary of eligible and ineligible expenses on its website.

A complete list is available in I.R.S. Publication 502.

Here are some questions and answers about health savings accounts:

How much can I contribute to an H.S.A.?

For 2020, individuals can contribute up to $3,550 and families up to $7,100. People 55 and older can contribute an extra $1,000. To qualify for an H.S.A. next year, you must have a health plan with a deductible of at least $1,400 for an individual and $2,800 for a family. If you’re not sure if your plan qualifies, ask your insurer.

For this year, the limits are $3,500 for individuals and $7,000 for families. Contributions for 2019 can be made up until the April tax filing deadline.

What if I want to save for a while, then invest the money later?

A reasonable approach, for those who can afford it, is to save enough in your H.S.A. to cover your deductible before you begin investing, said Justin McCarthy, a director and senior wealth adviser at Mariner Wealth Advisors in New York. That can help strike a balance between covering short-term medical needs and saving for future health costs.

Do I have to reimburse myself from my H.S.A. right away?

No. You can let the money in your H.S.A. grow, pay for health costs out of another account, then reimburse yourself for the expenses from the H.S.A. at any time in the future, Mr. Ramthun said. Just be sure to save receipts — whether in an actual shoe box or in a digital version, which many H.S.A. providers now offer. That way, should the I.R.S. request proof that the money was spent on eligible expenses, you’ll have documentation, Mr. Ramthun said. If you do save paper receipts, he said, be aware that ink can fade. It’s also wise to have an online backup.


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