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Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.
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Today’s question is about investing within a health savings account, or HSA. Heath savings accounts allow those with high-deductible health plans to get a tax break while setting money aside for health expenses. But should this money go into risky assets like stocks?
Here’s what I think.
For more information on this topic, check out “More Americans Are Using This Tool to Save — Should You Join Them?” and “10 Tips to Maximize Your High-Deductible Health Plan.” You can also go to the search at the top of this page, put in the words “investing” or “health insurance” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hi, everyone, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Let’s get right to today’s question. It’s from Kevin:
“Should I take advantage of HSAs that offer the opportunity to invest money in a mutual fund? Are earnings taxable?”
Let’s start with what an HSA is. HSA stands for “health savings account.” They’re kind of like an IRA. You put money aside, get a deduction for it, and then take it out for your health-related expenses. Earnings in your account grow tax-free.
So, HSA accounts are really cool. If you don’t have one, you should, but you can only have an HSA if you have a high-deductible health plan. “High-deductible’ means you must have a health insurance deductible of at least $1,200 if you’re single, $2,400 for a family plan.
I have an HSA plan, and have for many years. I haven’t, however, invested in things — like mutual funds — that can go up and down in value. But that’s what Kevin’s question is about. So, Kevin, should you put some of that money in your HSA in mutual funds? The answer is “maybe” — as long as you’re confident you’re not going to need it.
A mutual fund is an investment that contains a portfolio of investments. You could have stocks, bonds or any number of things in a mutual fund. Typically, investments in mutual funds can fluctuate in value, though, so you have to be really careful.
Obviously, HSA money is for health-related expenses. So, if you should need it, you don’t want it in something that fluctuates in value. Even though you’re young and you think you may not need this money for a while, you never know. You could have a car accident or some other emergency that forces you to cash out HSA savings immediately.
If all your money is invested in something that’s declined in value, you may be rubbing salt in the wound by being forced to take a loss. So, I’d be careful. But I wouldn’t say you shouldn’t do it.
I personally have about $30,000 in my HSA plan that I’ve accumulated over the years. I’ve thought about putting some into mutual funds, but I’ve already got plenty of other money in the stock market outside my plan, so I haven’t.
The bottom line is this: The younger, the healthier and the richer you are, the more sense it makes to put money from your HSA into something that can fluctuate in value, like a mutual fund.
I hope that answers your question, Kevin.
Let’s close today, as we always do, with a quote. This one comes from noted psychologist Daniel Kahneman.
“Money does not buy you happiness, but lack of money certainly buys you misery.”
Enjoy that one folks, and I’ll see you right here next time!
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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