A health savings account (HSA) is a powerful tool that extends beyond managing healthcare costs. It offers a unique combination of tax advantages and investment growth potential that can enhance your wealth strategy. Understanding its structure is key to unlocking its full value.
An HSA is a savings account offered to individuals enrolled in a high-deductible health insurance plan. The primary appeal of an HSA lies in its triple-tax advantage. Contributions are made pretax, funds grow tax-free, and withdrawals for qualified healthcare expenses are also tax-free. While they are often used for payment of current healthcare expenses, if left untapped and viewed as a long-term investment strategy, they have the potential to grow to the point where they can serve as a significant resource for healthcare or other costs later in retirement. This unique structure makes HSAs one of the most tax-efficient savings vehicles available.
Unlike a flexible spending account (FSA), HSA balances roll over each year, helping you accumulate substantial capital. Many employers allow you to invest the funds in a portfolio of stocks, bonds, and mutual funds, creating another avenue for long-term, tax-advantaged growth. At age 65, you can also withdraw funds from your HSA for non-medical expenses penalty-free, although any funds not used for healthcare purposes will be subject to income tax.
Integrating an HSA into your financial plan provides a strategic way to save for future medical needs while capitalizing on powerful tax and investment benefits. Work with your William Blair wealth advisor to determine how an HSA may align with your broader wealth and retirement goals.
Many HSA participants opt to pay their healthcare expenses out of pocket to let their HSA funds grow over time. Save all receipts for your qualified expenses, so you can reimburse yourself at any point in the future, presumably after the funds have had years to compound.