Avoid This Common Mistake With Your Savings Account

Health savings accounts (HSA) may be a dodgy retirement savings account, but according to a recent study, only 9% of account holders actually invest. And yet, by doing so, you can quickly multiply funds in your account with the added bonus of being able to spend that money without penalties on anything after age 65, not just medical expenses.

Case for investing through HSA accounts

Most people consider the HSA to be the best version of the Flexible Savings Account (FSA). They are similar in that both are designed to help you pay for your healthcare costs without any tax penalties, and all your contributions to the account are tax-deductible (or made pre-tax if your account is run by an employer.).

The difference with the HSA, however, is that funds carry over each year – no use-or-lose restrictions that you get with the FSA. Even better than that – and seemingly lesser known though – HSAs allow you to deposit money into your account (either through mutual fund stocks, ETFs, or bonds), allowing you to take advantage of compound interest and build those funds over time. …

A recent study by the Employee Benefits Research Institute (EBRI) shows that when HSA includes investments in their accounts, those investments account for 74% of their total HSA balance. And a recent report from research firm Devenir confirms these findings as they found that the average HSA balance as of June 30 was $ 17,954 for both cash and investment accounts, 6.6 times the average balance for no-deposit accounts. …

Okay, so why don’t more people invest in HSA?

According to Pensions & Investments , many account holders do not have enough money in HSA to start investing, as many of them do not reach the minimum threshold of at least $ 1000-2000 in their accounts (the amount varies depending on the provider.).

Awareness also plays an important role. As EBRI said in a statement, “By stimulating employee engagement with the HSA and contributing to their employees’ accounts, employers can help nudge their employees toward better use of the HSA.” In other words, plan sponsors and administrators should advise their employees that investing through their HSA is the first priority.

If you have an HSA, check with your provider or plan sponsor to find out what options you have. To learn more about investing with HSA, check out this post on Nerdwallet .

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