Maximize the power of your HSA to help you save more for health care

You save for a house, a car, a dream vacation—but what about health care? Most people agree that their health is a priority—yet many aren’t doing enough to prepare for rising health care expenses, health care in retirement or unforeseen medical emergencies. Your Health Savings Account (HSA) comes with some special features that can potentially help you build your savings and prepare for the future.

The “special sauce”

Many people use their HSA like a Flexible Spending Account (FSA) and spend most of what they contribute each year, but this misses an important benefit of an HSA—one that may be the key to your future health care security. What makes an HSA different and special is that your HSA account balance rolls over from year to year and can be invested for potential tax-free earnings that can help build your account for the future.

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Tip: Be proactive about building your health care savings by making a commitment to contribute a little more to your HSA than what you will spend each year. Because your balance rolls over each year, it can add up over time.

Keep some in cash and invest the rest

Once you have enough in your HSA to cover your short-term health care expenses, consider investing a portion of your balance for the potential for growth over time. It’s a win-win situation: You can continue to access cash in your account for today’s health care needs while investing for the future. Let’s take a look at an example of how this could work.

Example 1:

If you get paid biweekly and contribute $50 per pay period, that would amount to $1,200 in a year. If you use half of that for current health care expenses, that leaves $600 that could be invested. At a 5% rate of return, that could grow to over $20,000 in 20 years—for potential to have $8,000 more than if you keep your balance in cash.

Bar chart shows comparison of HSA dollars in cash and investments. Assuming a .03% interest rate, a cash balance of $600 could be $12,036 after 20 years. Assuming a 5% rate of return, investing $600 could potentially grow to $20,373 over 20 years.

Example 2:

If you increase your contribution to $125 per biweekly pay period, that will amount to $3,000 in a year. If you use half for current health care expenses, you would have $1,500 to invest annually, At a 5% rate of return, your balance could grow to over $50,000 over a 20-year period—just over $20,000 more than if you keep your balance in cash.

Bar chart shows comparison of HSA dollars in cash and investments. Assuming a .03% interest rate, a cash balance of $1,500 could be $30,091 after 20 years. Assuming a 5% rate of return, investing $1,500 could potentially grow to $50,932 over 20 years.

Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. Scenarios assume 5% rate of return on investments and 0.03% interest rate for cash account. Scenario 1 assumes annual contributions of $1,200 and spending of $600 over 20 years. Scenario 2 assumes annual contributions of $3,000 and annual spending of $1,500 for 20 years.

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Tip: Enroll in automatic investments. Once your balance reaches the threshold you set for your account, funds will automatically transfer to your investment account.

Unleash the power

You’ve already established your HSA—so now take the next step to make your money work harder for you. Unlock your HSA’s full potential by taking advantage of opportunities to boost your contributions, roll over savings from year to year and invest for tax-advantaged growth for your future. Get started today by setting up your investment account.

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.

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice.

State and/or local income tax treatment of payroll contributions may vary. Participants may wish to consult with a tax advisor regarding the state income tax treatment of such contribution.