Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Each scenario assumes annual contribution of $5,000 and $3,000 in withdrawals with cash accounts earning 0.03% in interest and investment accounts a 5% rate of return. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than original cost. Many retirees are likely to withdraw funds from their retirement savings to pay for health care expenses—but it's important to note that withdrawals from a traditional 401(k) are taxable while withdrawals from your HSA for qualified medical expenses are tax-free.
Discover the potential of investing with your HSA
Tax-free earning potential1
A Health Savings Account earns interest like any traditional savings account, but money sitting in a cash account could be working harder for your future. With the option to invest a portion of your HSA balance in a range of mutual funds; you have the opportunity for federal tax-free earning potential that could help you build your account balance over time so you're prepared to cover qualified health care expenses for years to come and into retirement.
Cover your short-term health care needs.
Increase your tax-free earnings potential1 to cover future needs
Investing money each year in your HSA can help your balance grow over time so you are prepared when you need it. See how investing just $2,000 annually can really add up.
Note: When selecting investment funds for your HSA, take into consideration your overall portfolio strategy in other longer-term investments such as a 401(k) plan or IRA to ensure you are aligned with your financial goals and priorities.
Health care in retirement
Did you know a 65-year old couple could need $301,000 for health care expenses in retirement? 2 Using the investment feature of your HSA provides growth potential. Keep in mind investing involves risk including possible loss of principal value invested. In retirement you can make a tax-free withdrawal from your HSA to pay for eligible medical expenses, potentially saving you thousands of dollars in taxes.
How does the automatic investment feature work?
You establish an investment threshold3 for your account—this is the amount you want to keep as your cash balance. Once established, your funds will automatically transfer between cash and investments to maintain that balance when contributions or withdrawals are made.
Not sure how much to set as your threshold?
Here are some suggestions to help you determine how much to set.
Choose a dollar amount you are comfortable having on hand to cover short term expenses3
The annual deductible for your health insurance plan
Estimated amount of money that you plan to pay out of pocket this year
Find out more about setting up investments—you have the option to set up automatic investment transfers or you can make manual transfers.
1 About Tax Benefits: You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA.
If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax.
Any interest or earnings on the assets in the account are tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. Certain limits may apply to employees who are considered highly compensated key employees.
Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.
2 Sources: Employee Benefits Research Institute, Issue Brief, no. 481, May 16, 2019. A 65-year-old couple, both with median drug expenses needs $301,000 to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement. Savings needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at age 65 in 2019.
3 Minimum investment balance requirements are located on the member website
Investments in mutual funds:
Certain associates are registered representatives with MLPF&S and may assist you with investment products and services.