Health savings accounts (HSAs) can be a vital part of retirement savings, but many workers aren’t using them to their maximum benefit.
Of the 13 million HSAs in the Employment Benefit Research Institute’s (EBRI) database, only 12% of the account holders invested their HSAs in assets other than cash. The disparity in benefits is stark. The average HSA balance among those who invest is 10 times the size of HSA balances that aren’t invested.
That means many workers are missing out on a savings vehicle that offers triple tax advantages and can pad their retirement savings down the road.
“HSAs are in really early days, so people are not familiar with them,” Jake Spiegel, an EBRI research associate with the organization’s health and wealth benefits research department and co-author of the study, said. “If employers provide more educational seminars, that may lead more people to invest in HSAs.”
HSA account holders don’t invest as much as they should
Health savings accounts are only available to individuals enrolled in a high-deductible health care plan (HDHP). While the funds saved in these plans can help people cover the deductible before their insurance coverage kicks in, the account also can help with longer-term retirement savings.
That’s because funds in these accounts have three major tax advantages: contributions are tax deductible; earnings grow tax free; and withdrawals for eligible health expenses are tax free. Ineligible withdrawals are subject to a 20% penalty. But when you reach 65, you can withdraw for any reason without penalty.
Funds in HSAs can also be invested to maximize their values.
For instance, EBRI found that the average balance of HSAs with invested assets was $23,997 in 2021, compared with $2,458 for HSAs with no invested assets. Balances of invested HSAs also grew by $4,817 on average, versus $124 for uninvested HSA balances.
