Gold HSA: Holding precious metals in an HSA

Health Savings Accounts (HSAs) are becoming increasingly popular for investors looking to save money and help pay medical expenses. Most investors don’t realize that like other IRAs, the HSA can be used to invest in alternative assets such as gold and other precious metals.

HSAs enable you to save on your medical expenses because you can make pre-tax contributions to your HSA, and withdraw those moneys tax free when you want to pay for the expenses. Anyone can make contributions into your HSA—and you can contribute to anyone else’s—until the contribution limit is met.

HSAs even allow the HSA account-holder to pay themselves back for bills paid out of pocket (provided paperwork still in hand and that the HSA was opened prior to the medical expense). You can hold on to those receipts for years, allowing the account to grow to its maximum potential before using the funds to reimburse yourself for those expenses.

At the same time, you may have been considering the merits of holding real physical precious metals such as gold and silver in a retirement account. Holding precious metals in an IRA provides protection against the erosion of purchasing power via inflation as well as the potential for appreciation as hard assets.

A Gold HSA, then, will allow you to create a reoccurring purchase plan with a metals dealer of your choosing to make specific bullion or precious metals purchases at regular intervals. As your HSA accumulates funds, it can buy more assets, potentially generating more money to pay for expenses. This is called Dollar Cost Averaging.

Dollar Cost Averaging Basics

Dollar Cost Averaging has long been popular with mutual fund investors, since this practice of buying the same dollar amount or same number of specific items, at regular intervals, means that you automatically a bit less when prices have risen, and you buy a bit more when prices have fallen.

In other words, over time these price fluctuations even themselves out, enabling the investor to accumulate the investment at a lower average cost, while also protecting against the risk that prices will drop just after making a big lump investment.

What’s the bottom line to me?

Obviously, since prices — whether they be stocks, gold, or foodstuffs — will tend to rise over time, the best investment strategy (provided you knew what you wanted to buy and how much of it) would be to invest all the funds now, rather than over time. Since this is a retirement account, however, and therefore one is typically making annual contributions over a number of years’ time, the “all at once” strategy may not be feasible.

The next best thing, however, is Dollar Cost Averaging—and the Gold HSA utilizes the power of this principle in tandem with the practical matter of accumulating hard assets such as gold or silver to your retirement account.

How to use an HSA: Save for medical expenses, save for retirement

It's difficult sometimes to make ends meet while putting away enough to reach our retirement goals, especially with an uncertain market and ever-changing legislation. The government recognizes this. And so we're fortunate, at least, that our current tax laws provide us with a great way to save and reduce our taxes in retirement accounts.

Health Savings Accounts (HSAs), specifically, are rapidly growing in popularity and provide a unique way to save money, grow retirement accounts and pay for medical expenses. HSAs have been available since 2004 and have the tax-free quality of a Roth IRA but the tax deductibility of a Traditional IRA.

Rising health insurance costs have forced employers into offering High Deductible Health Plans to employees. Some employers choose to fund the HSA for the employee to take some of the sting out of the high deductible. However, what makes these HSAs alluring is that contributions to HSA accounts made by the individual are 100% tax deductible and distributions for qualified expenses from the HSA are not taxable.

The best part of taking HSA distributions is that there is no time limit on how long you can hold onto qualified expenses before requesting a reimbursement. In fact, waiting to take distributions from the HSA gives the account time to grow.

Most HSA accounts are meant to be spent, which means that most of those offered are without access to true investments. In order to gain access to investments that are going to grow your HSA, you need to open a self-directed HSA account and direct the funds. You may direct the funds into brokerage accounts, precious metals or, in the case of one account holder, real estate. There is no limit on what you can invest in as long as you stay within the IRS guidelines.

Consider this example: Joe has been contributing to his HSA for 3 years and has accumulated more than $16,000. Although he has more than $10,000 in reimbursable medical expenses he plans on holding on to them for a while. As a real estate broker Joe sees lots of opportunities for second mortgages. One of his office mates, Phil, has a deal that requires additional cash. A first mortgage has been obtained by Phil’s client for the purchase but the renovations will require an additional $15,000. Joe offers to lend the funds to Phil’s client for 8% and will secure the financing with the property. The money will be tied up for 2 years but during that time it will be earning a reasonable interest rate.

Why not invest in something long-term and request reimbursement 10, 15 or 20 years in the future? Allowing your contributions to grow long-term (now $6,450 per family in 2013) could result in a lucrative and pain-free investment.

New Direction IRA is a self-directed IRA and HSA account administrator and does not sell or sponsor any investment products nor provide investment or tax advice. Since 2003 New Direction has helped clients invest in what they know and understand.