Much like Jennifer Lopez, health savings accounts are a triple threat: Participants can contribute tax-free dollars, take them out tax-free (in certain cases), and let them grow tax-free. And while the first two benefits of HSAs have long been widely known, people may be — finally — waking up to the last.
As of June 30, roughly 2 million accounts had at least some of their HSA funds invested (as opposed to just parked in a savings account), according to a recent report from health care investment company Devenir. What's more, those investment assets reached an estimated $30.4 billion — up 73% from 2020.
An estimated 31.1 million Americans have HSAs, which are offered to people with qualifying high-deductible health care plans to help cover medical, dental and vision expenses. It's common to view an HSA as a short-term savings account or a way to save for retirement, given that withdrawals can be used for non-medical expenses after age 65 (as long as you're willing to pay tax on them). But you can typically also use one to invest and earn returns in the stock market.
HSA account holders have underutilized the investment option for years. As of 2015, estimates of the population that was investing hovered around 3%. Now, according to the Devenir survey, the number is up to 6% of all HSA accounts.
In a news release, Jon Robb, senior vice president of research and technology at Devenir, credited the surge in investment assets to "an increasing awareness of the role HSAs can play in planning for retirement healthcare costs."
Oh, and the robust COVID-19 stock market hasn't hurt, either.
Devenir calculated the average HSA investor balance to be $17,954, though that includes both deposits and investments. The older the account, the higher the balance: HSAs opened in 2004 boast totals just over $64,000, while HSAs opened in 2020 barely break $12,000.
This cash is crucial given the climbing costs of retirement: Fidelity now estimates that the average 65-year-old couple needs $300,000 to cover their health care expenses as retirees, up from $295,000 in 2020. To cover these expenses, your portfolio will need the kind of growth that comes from investing in stocks, not from savings accounts with paltry yields. And since the growth of those investments is tax-free, you won't owe anything on the gains you make in the market.
As a reminder, for the 2021 tax year, the IRS has said individuals with self-only plans can contribute as much as $3,600 to their HSAs. People with family plans can contribute up to $7,200. People older than 55 can sock away an extra $1,000.
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