Health Savings Account | HSA Benefits | Fidelity Investments (2024)

FAQs

Health Savings Account | HSA Benefits | Fidelity Investments? ›

You are eligible to use the investment feature of your HSA once your cash account balance has reached the investment threshold¹ you establish. You may choose between automatic or manual investment options, however you must first enroll in the investment feature to get started.

You are eligible to use the investment feature of your HSA once your cash account balance has reached the investment threshold¹ you establish. You may choose between automatic or manual investment options, however you must first enroll in the investment feature to get started.

After age 65, you can use your HSA to pay for things other than health care. You'll owe ordinary income tax on the funds with no other penalty—similar to withdrawals from 401(k)s and IRAs. However, HSAs aren't subject to required minimum distributions, making them a compelling option for retirement savings overall.

The main downside of an HSA is that you must have a high-deductible health insurance plan to get one. A health insurance deductible is the amount of money you must pay out of pocket each year before your insurance plan benefits begin.

Spend: Pay for qualified health care expenses

That's a good strategy because an HSA is a personal savings account that works in combination with an HSA-qualified health plan to let you set aside money on a pre-tax basis to help save for health care expenses.

You may begin investing once you have a minimum of $1,000 in your HSA cash account. HSA funds above that amount can be transferred to your investment account. Health Savings Accounts (HSAs) are often thought of just for healthcare savings.

It's a great way to prepare for health care costs in retirement. Fidelity HSAs are brokerage accounts, giving you more options for simple, seamless investing of your HSA money in a range of mutual funds, stocks, bonds, ETFs, Treasuries, and more.

You can treat an HSA as a long-term investment account, an account for paying medical expenses, or both. If you have access to an HSA, you can invest in it to significantly increase your potential wealth. That's because contributions, earnings, and even withdrawals can be tax-exempt if certain requirements are met.

Yes, and tax-free. HSA accounts calculate, compound, and credit interest monthly based on the applicable rate for different tiers of the account balance.

Annual expenses to be paid with HSA savings: $2,000. Federal income tax rate or bracket: 25% State income tax rate: 0% Interest rate or average annual rate of return: 2.5%

Is it better to invest in HSA or 401k? ›

There's an easy solution right in front of us: the health savings account (HSA). In fact, the HSA is superior to a 401(k) when it comes to saving for retirement. HSAs have all the same advantages of a 401(k) — and more. Just like with a 401(k), you can contribute to an HSA until Medicare coverage starts.

Using an HSA and a 401k together

First off, most experts would recommend maxing out HSA contributions before maxing out 401(k) contributions because of the tax advantages that come with the HSA. There's no minimum age for HSA fund distributions, so when you need it to spend money on health care, it's got your back.

You can also use HSAs to help pay for dental care. While dental insurance can help cover costs, an HSA can also help cover any out-of-pocket expenses resulting from dental care and procedures.

If you're 65 or older, retired and on Medicare, you're no longer eligible to contribute to the HSA, but can continue to use the funds for qualified medical expenses. If you're 65 or older, you're not limited to using an HSA just for health care expenses.

Once you turn 65, you can withdraw your funds for any reason and avoid the 20% penalty that typically applies for nonmedical distributions. You'll only be on the hook for income taxes. That makes an HSA a good supplementary retirement account if you tend to have low medical expenses.

Try to invest as much of your HSA money as possible while ensuring that you keep enough cash to cover your qualified medical expenses. Consider where your other retirement plans are invested as well to make sure that your HSA investments provide diversification. Avoid taking out funds from your HSA as much as possible.

As long as you're receiving federal or state unemployment benefits, you may withdraw the money in your HSA to pay health insurance premiums.

Online Transfers – On HSA Bank's member website, you can reimburse yourself for out-of-pocket expenses by making a one-time or reoccurring online transfer from your HSA to your personal checking or savings account.

The HSA millionaire: Far more elusive, but not impossible

This means that it's more difficult for funds in an HSA to experience the benefits of uninterrupted compounding. Nonetheless, it's not impossible -- even if you withdraw and spend a good portion of your HSA contributions every year. Let's say Tim is single.

How much can you invest in an HSA per year? ›

2022 HSA contribution limits

The HSA contribution limits for 2022 are $3,650 for self-only coverage and $7,300 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.

Unfortunately, right now, according to IRS data, only about one in ten Americans has an HSA, or about 33 million people. And that percentage is unlikely to rise — ever — without an act of Congress. Why?

HSAs and Roth IRAs are both tax-advantaged accounts. The IRS sets a limit on how much you can contribute to both each year. As we said above, HSA may be a better option to max out first since it offers potentially more savings power.

If you keep a relatively small balance in your HSA or you plan to regularly tap the account, it could make sense to go with low-risk, low-return options such as money market funds. That way you'll be sure that your money will be there when you need it to pay bills.

Using an HSA as an additional retirement plan

You'll get tax deductions for contributions and the money will be able to grow tax-free until you reach retirement. While the amount you can contribute each year to an HSA is lower than that of 401(k)s and IRAs, it still gives a nice boost to your retirement planning.

According to the IRS, you cannot use your HSA to pay for vitamins or supplements that are taken for general health. However, you can use your HSA to pay for vitamins or supplements that have been recommended by a health professional to treat or prevent a specific condition.

Preventative care that is not doctor prescribed is not always HSA eligible. Some examples of common healthcare expenses that fall into this category are: Vitamins, nutritional, and herbal supplements for general health. Personal hygiene items such as toothpaste and deodorant.

Toothpaste: HSA Eligibility

Toothpaste is not eligible for reimbursem*nt with a flexible spending account (FSA), health savings account (HSA), health reimbursem*nt arrangement (HRA), limited-purpose flexible spending account (LPFSA) or a dependent care flexible spending account (DCFSA).

You can use HSA funds to pay for deductibles, copayments, coinsurance, and other qualified medical expenses. Withdrawals to pay eligible medical expenses are tax-free. Unspent HSA funds roll over from year to year, allowing you to build tax-free savings to pay for medical care later.

In addition to using an HSA for medical expenses, it can also be used as another way to save for retirement. Once you reach age 65, money held in an HSA can be withdrawn and used for any reason, the only catch being that you'll pay ordinary income taxes on withdrawals not used for qualified medical expenses.

Can you invest in an HSA after retirement? ›

When retiring early you can continue contributing to an HSA as long as you meet the requirements: You are not yet enrolled in Medicare. You're covered on a high-deductible health plan. You're not someone's tax dependent.

∎ Can I contribute to an HSA even if I'm not employed: You do not have to have a job or earned income from employment to be eligible for an HSA – in other words, the money can be from your own personal savings, income from dividends, unemployment, etc.

Can I use my HSA for a gym membership? Typically no. Unless you have a letter from your doctor stating that the membership is necessary to treat an injury or underlying health condition, such as obesity, a gym membership isn't a qualifying medical expense.

You can use your FSA or HSA funds to pay for birth control pills and condoms. You can also use them for erectile dysfunction (ED) medications like Viagra®.

According to the IRS, you cannot use your HSA to pay for vitamins or supplements that are taken for general health. However, you can use your HSA to pay for vitamins or supplements that have been recommended by a health professional to treat or prevent a specific condition.

Can I roll over my HSA to a 401(k)? You cannot roll over HSA funds into a 401(k). You also cannot roll over 401(k) money into an HSA.

Yes, and tax-free. HSA accounts calculate, compound, and credit interest monthly based on the applicable rate for different tiers of the account balance.

But how much should you save? According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.

HSA funds can't be rolled over into an IRA account. There's also no reason to do so, because you preserve your right to use the funds tax-free for medical costs at any time with an HSA.

At age 65, most Americans lose HSA eligibility because they begin Medicare. Final Year's Contribution is Pro-Rata. You can make an HSA contribution after you turn 65 and enroll in Medicare, if you have not maximized your contribution for your last year of HSA eligibility.

What is the 12 month rule for HSA? ›

If you are eligible to contribute to an HSA on the first day of the last month of your tax year (e.g., December 1, 2022), you are considered eligible for the entire year (e.g., through December 31, 2023). This last-month rule is true only if you stay enrolled in an HSA-qualifying HDHP during that time.