Advertisement
insurance

Investing in an HSA? Better Shop Around

Health savings accounts are a great way to save long term, but high fees can hurt returns.

Nearly half of all people covered by private health insurance are now in high-deductible plans, with the percentage rising every year, according to the National Center for Health Statistics. Whether you sign up for a high-deductible plan by choice or because it’s the only option available, having a high-deductible policy unlocks a valuable opportunity: the ability to get a triple tax break with a health savings account. Your contributions are tax-deductible (or pretax if made through your employer), the money grows tax-deferred, and you can withdraw money tax-free for eligible medical expenses at any time.

You’ll get the biggest benefit if you invest the HSA money for the future and use other cash for current expenses. There’s no time limit for withdrawing HSA money tax-free for eligible expenses you incur once you open the account, as long as you keep your receipts.

Advertisement - Article continues below

While these accounts provide a tax-efficient way to save for future health care costs, high fees can diminish their appeal.

If your employer offers an HSA, that’s usually your best bet; most employers cover the administrative fees, and employers often contribute to employees’ accounts. But if you’re getting an HSA on your own, it’s important to compare the costs of different plans. Morningstar found that nine out of 10 popular HSAs charge a maintenance fee, ranging from $12 to $54 per year, and several charge an extra fee of $18 to $36 to invest the money, in addition to annual mutual fund expenses. (Some waived the maintenance or investing fee if you keep a minimum of $2,000 to $5,000 in the account.) The fees can be difficult to decipher. The industry needs a lot more transparency, says Morningstar’s Leo Acheson.

Advertisement
Advertisement - Article continues below

The options are improving. Fidelity, which used to offer HSAs only through employers, recently introduced an HSA available directly to consumers that charges no annual or maintenance fees. And Vanguard just started to offer HSAs to employers. The compet­ition from new offerings should help lower fees and improve transparency; Acheson saw the same thing happen with 529 college-savings plans.

To qualify for an HSA, you need an HSA-eligible insurance policy with a deductible of at least $1,350 for individual coverage or $2,700 for family coverage, whether you get insurance through your employer or on your own (you can’t contribute if you’re enrolled in Medicare).

States With the Lowest Gas Taxes

Getty Images

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020

Recommended

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
For Financially Responsible Kids, Do NOT Do These 3 Things
family savings

For Financially Responsible Kids, Do NOT Do These 3 Things

The key to putting your kids on the right financial path can be boiled down into one sentence.
July 1, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020
Applying for Disability Benefits During a Global Pandemic
insurance

Applying for Disability Benefits During a Global Pandemic

It can take months or even years to get approved for Social Security Disability Insurance (SSDI) benefits in the best of times. Needless to say, now i…
June 24, 2020