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The vast majority of health savings account owners do not invest their money – and they will likely miss out on it in the long run.
According to a study published Thursday by the Employee Benefit Research Institute, only 9% of account holders invested some of their HSA balance. The rest – 91% – kept their full balance in cash.
HSA owners can invest money in mutual funds (one that tracks the S&P 500 stock index, for example) and other options that are generally available to retirement savers.
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The low percentage of accounts invested is alarming as it suggests that many people are not fully utilizing HSAs, according to Paul Fronstin, director of EBRI's health research and education program. However, some might have valid reasons not to do so, he said.
"For the same reason you hopefully invest your 401 (k) in mutual funds, you can do the same in your HSA," Fronstin said.
HSA savers who have the resources to invest at least some of their money will generally see faster growth in their savings and therefore have more money to cover healthcare costs in old age – when they are more likely to be in need of care, Frontin said.
The average retired couple aged 65 in 2021 may need around $ 300,000 after tax to cover retirement healthcare costs, according to Fidelity Investments.
Investors are also more likely to keep up with or to beat healthcare inflation. Savings held entirely in cash would likely depreciate in value relative to the cost of future care, Fronttin said.
In 2020, the average non-cash investment account grew by $ 3,420, while the average uninvested account grew by $ 170, according to EBRI. (Account contributions can make up part of this difference.)
Not available to everyone
HSAs are tax-privileged savings accounts. They enjoy a unique advantage over retirement accounts in that savings are never taxed when used for qualified medical expenses. (Depending on the type of account, the retirement assets are taxed when they are deposited or withdrawn.)
The accounts are only available to people with a high deductible. These health plans have become increasingly popular with private sector employers over the past decade, and HSA use has increased.
According to Devenir, an HSA provider, there were around 31 million accounts in June, about five times more than in 2011. They held $ 93 billion, up from about $ 12 billion a decade ago.
The proportion of accounts invested is growing, but slowly. In 2015, 4% of HSAs had invested at least some savings, according to EBRI.
"It's going up at a snail's pace," said Fronstin.
Of course, not everyone necessarily has the resources to invest.
This would mean paying out of pocket short-term healthcare expenses (potentially hundreds or thousands of dollars) to keep HSA funds invested and provide more runway for investment growth.
One strategy that can help such savers is to keep enough cash in an HSA to cover your annual deductible and invest the rest, Fronstin said.
There are other valid reasons why you might not be investing in HSA savings.
For example, some HSA administrators may not even offer users investments; many also require a minimum balance (maybe $ 1,000 or $ 2,000) before users can begin investing.
The latter requirement could be a problem for a large proportion of account holders – about 40% of accounts ended 2020 on less than $ 500, according to EBRI.