Low-Cost Asset Investing Can Help You Maximize Your HSA Account’s
Potential
Patricia McCrystal
July 27th, 2015
An HSA, or Health Savings Account, provides those with High
Deductible Health Plans (HDHPs) an avenue to save and invest money for all
present and future qualified medical expenses, or QMEs. HSAs were approved by
Congress in 2003 during one of the most intensive governmental interventions in
medicine in 40 years. The intent behind the inception of HSAs is to allow participants
of HDHPs to pay out-of-pocket qualified medical expenses, with tax benefits,
until their deductible kicks in.
One of the main perks of an HSA account is that contributions aren’t
taxed when they go into the account, and funds aren’t taxed when you take a
distribution either. In addition, unlike Health Reimbursement Accounts (HRAs)
which are employer-controlled, or Flexible Spending Accounts (FSAs) which offer
funding on a “use-it-or-lose-it” basis, once contributions have been made into
the account, it stays open and retains the money until the account holder takes
distribution of the funds – regardless of whether the account holder is still employed
by the employer who offered the HSA account.
Although many HSA account holders are comfortable reimbursing
themselves for QMEs and taking advantage of the “discount” associated with
tax-free distributions, few are knowledgeable about the benefits of investing their
funds to potentially grow their account profits. This lack of awareness most
often stems from the fact that there are not many HSA providers that allow
account holders to invest their HSAs, and even fewer who allow account holders
to invest outside of the securities market. When an HSA account is held with a provider
that allows only a narrow list of investment choices (if any at all), typically
the rate of growth on these accounts is minimal over time. It’s no surprise that
many HSA holders don’t see the benefit of saving their HSA funds if they never see any real
growth in their account from their limited investments.
However, investing in low-cost assets with a self-directed
HSA account offers account holders the opportunity to potentially make some real money
over time. Self-directed HSAs offer the most investing options; and you may be
surprised by how many options are available to HSA investors. Because annual
contribution limits of an HSA are lower than those of a 401(k) – the HSA yearly
contribution limit is $3,350 a year for individual HDHP coverage, and $6,650 a
year for family coverage (including employer contributions), while 401(k) yearly
contributions top off at $53,000 (including employee and employer contributions)
– investing your HSA account in low-cost assets can help your account realize
greater profits, which means less out-of-pocket spending for health expenses.
It’s common for employers to offer HSAs through a provider
that offers a very limited scope of investing options for their account.
Consequently, many investors will open a second HSA account with a provider that
allows for alternative asset investing, such as New Direction IRA. From here, investors can turn to an almost
limitless array of low-cost alternative assets that can potentially bring the
account holder a sizeable return on their investments.
As HSAs have continued to grow in popularity and average
sum being saved, technology has evolved to provide account holders with more
online market places for relevant services; including crowdfunding and locating
asset providers. One route for HSA investing is peer-to-peer lending. This type
of lending allows investors to sort through consumer loan listings and pick
those that best fit their investing interests. Borrowers then make fixed
monthly payments to the investor’s HSA account, which can be used for QMEs.
In a similar vein, HSA holders can originate their own
loans. They can also invest in private equity opportunities, such as buying private
stock in a friend’s promising new upstart, or in a qualified family member’s
solar energy enterprise (be mindful of
disqualified persons/prohibited transactions for HSAs).
There is a wide variety of real estate options in which HSA
holders can invest their account funds. Investors can finance a personal
fix-and-flip project, or fund a real estate venture of a friend’s. HSA holders
can also look into investing in a private real estate fund. These funds can
vary widely in regards to asset type, minimums, date of distribution, and more;
giving investors plenty of flexibility to define the terms of the investment
that they choose. An HSA can also invest in tax liens, which are state and
property specific regarding rate of interest and other regulations.
A few stipulations: your HSA can only be used for
medical-related expenses, otherwise you’ll have to pay regular income taxes on
the distribution on top of a 20% penalty. Investors can’t open an HSA if they
are on Medicare, or are a dependent of another’s health insurance plan.
Despite these caveats, your HSA can be a powerful tool to
grow your savings for present and future medical expenses, especially through informed
alternative-asset investing. Contact a self-directed HSA provider like New Direction IRA to move forward with
investing your HSA funds today!
