You may already be aware of the tax and contribution benefits that separate health savings accounts (HSAs) from other self-directed savings vehicles, but are you making the most of those benefits? Let's examine five key possibilities that self-directed HSA investors may want to think about:
Your HSA can invest in anything a self-directed IRA or 401(k) can, from publicly-traded securities like stocks or mutual funds to alternative investment options like real estate or precious metals. You may therefore enjoy the flexibility of self-directed retirement investing while garnering the additional tax advantages of an HSA.
HSAs offer the unique opportunity to make tax-deferred contributions and tax-free distributions, provided the withdrawals are applied toward qualified medical expenses (QMEs) or reimburse the account holder for QMEs previously paid. The list of QMEs is extensive, but a non-qualified distribution from an HSA can have tax and penalty implications. We encourage you to review IRS Publications 969 and 502 for detailed information about QMEs.
As with any investment vehicle, your HSA has the greatest opportunity to grow if you limit the number of distributions you take. Instead of covering copays, prescriptions, or other relatively cheap QMEs with your HSA, consider paying for them personally. This allows your HSA to grow and remain available for larger expenses that may arise down the road. If you intend to take a distribution to cover a QME, remember that you may delay distribution until you see fit; you’re under no obligation to execute an HSA distribution immediately after an expense is assessed.
Making your maximum allowable HSA contributions can boost your plan’s earning potential and allow you to deduct up to the full contribution amount from your taxes. Many employers are beginning to offer HSAs as alternatives to PPO plans, so be sure to review your options and select an avenue that will maximize employer contributions as well.
Comparing medical services and their costs can help you get the biggest bang for your HSA buck. Be sure to take advantage of free preventative care services, review your healthcare habits, and implement positive lifestyle changes whenever possible to minimize the use of your HSA dollars until absolutely necessary.