Your HSA Can Grow: Investing and Using It Later in Life

Most people use their Health Savings Account (HSA) to pay this year's doctor bills. That's great. But an HSA can do much more. If you let it, it can grow into a big pot of money for later in life.

Step 1: Build a cushion

First, keep enough cash in your HSA to cover your deductible or a surprise bill. This is your safety net. Many HSAs also ask you to keep a small amount in cash, like $1,000 or $2,000, before you can invest.

Step 2: Invest the rest

Many HSAs let you invest extra money in things like mutual funds. This is similar to investing in a 401(k) retirement account. Over many years, investments can grow much faster than a savings account.

But investments can also go down in value. Only invest money you won't need for a while.

See how it can grow

Let's say you put $2,000 a year into your HSA and invest it. If it grows 5% a year (just an example, not a promise):

10 years

• You put in: $20,000

• Your HSA could be worth: about $25,000

20 years

• You put in: $40,000

• Your HSA could be worth: about $66,000

30 years

• You put in: $60,000

• Your HSA could be worth: about $133,000

And because it's an HSA, you don't pay taxes on that growth when you use it for medical costs.

Why save for later?

Health care costs usually go up as we get older. Even with Medicare, retirees pay for things like monthly premiums, prescriptions, dental and hearing care. Your HSA can pay for many of these tax-free, including most Medicare premiums.

What happens at 65?

At 65, your HSA gets even more flexible:

• For medical costs: Still tax-free, just like before.

• For anything else: No more 20% penalty. You just pay regular income tax, like a 401(k).

So your HSA works like a backup retirement account too.

A smart trick: pay yourself back later

You don't have to pay yourself back from your HSA right away. You can pay a doctor bill with your own money today, save the receipt, and pay yourself back years later. Meanwhile, your HSA money keeps growing. Just keep your receipts in a safe place.

Meet Denise

Denise is 35. She keeps $2,000 in cash in her HSA for surprises and invests the rest. When she has small bills, she pays from her checking account and saves the receipts. By the time she retires, she hopes to have a big HSA to help with health costs.

Key takeaways

• Keep a cash cushion, then consider investing the rest of your HSA.

• Invested HSA money can grow a lot over many years, tax-free for medical costs.

• After 65, you can use your HSA for anything without a penalty, paying only regular income tax.