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Should I Spend or Invest My HSA Contributions?

10/30/2013

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Q. What's the best way to use my HSA contributions - use it to pay any medical related expenses now or leave it in the account and invest for the long term?

A. HSA is better than 401(k) - 
  • You're not taxed on the contributions going into your account
  • You're not taxed on the investment earnings
  • You're not taxed on the amounts that are withdrawn from your account, as long as you use this money to pay for medical bills
  • Your employers may even contribute to your account, it's free money!

HSA administrators typically offer an array of investment options that are similar to the investment menu in your 401(k) plan. And your investment strategy for your HSA should be similar to your 401(k) investing strategy, since you have about the same time horizon. 

You can use HSA money to pay for Medicare premiums. These are currently at least $115.40 per month per person for Medicare Part B; add $30 per month or more if you buy a Medicare Part D prescription drug plan.

If you can afford to save more money for tomorrow through HSA, invest it; 
If your budget is so tight that you need to spend the HSA money for medical expenses in the current year, then spend it.



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