Should You Invest or Spend Your HSA? (Financial Planner Explains)

Title: Should You Invest or Spend Your HSA? (Financial Planner Explains)

Check this out! You may qualify to spend your HSA on insanely cool products like Peloton, Sauna's, Gym equipment, Bikes, and so much more.

Today we're going to talk about the HSA! There's a lot of videos out there discussing the HSA, and what to do with it. One common advice for the account is to use your current credit card for medical purchases, keep every receipt, and reimburse yourself from your HSA later in life. There's nothing wrong with that approach, but definitely not how I'm choosing to do it. Today, I'll share a different perspective - and how my family personally uses our HSA.

If we haven't met, I'm Joel Miller, founder of Flames Financial Planning. We're a financial planning firm that works primarily with retirees and high-earning families, helping them make confident financial decisions across investment management, financial planning, tax filing, and estate planning- all under one membership. If you're interested in learning more about our membership, be sure to check out the links in the description!

So, let's start with a few basics.

An HSA, or Health Savings Account, was created in 2004. It started gaining real traction around 2010 to 2013 as more people moved into high-deductible health plans, and then again after 2018 when contribution limits began rising more quickly.

One of the reasons that HSAs are so popular is because of their unique tax structure. It is the only "triple-tax advantaged account". That means contributions can be made on a pre-tax basis, growth can occur tax-free, and qualified medical withdrawals are also tax-free. Because of that combination, many people view HSAs as one of the most flexible and powerful accounts available.

You may hear of HSAs described as a "stealth retirement account," and for many people, that there's nothing "wrong" with that approach. But here's how my family personally approaches it.

We primarily use our HSA as a medical spending account first and as a retirement account second.We swipe our HSA card for all approved medical spending. Things like doctor visits, dental care, I got LASIK eye surgery, and even hospital expenses for birthing our kids. Over time, our contributions have generally outpaced our withdrawals, so the account has continued to grow, even while using it for cashflow needs.

I am a very average endurance athlete, but my wife and I have decided to prioritize spending when it comes to health. Doing half-ironmans is expensive, but it helps keep me healthy and I live a more full life because of it. I believe that wealth is so much more than just the dollar value you're worth. I believe it's your financial, physical, and mental health all wrapped together. Staying physically & mentally healthy impacts how I spend time with my wife and kids, how I run my business, and so much more.

That's exactly why we use our HSA for current life priorities when available. Again, in the hierarchy, it is current cash flow first and retirement second, which I truly believe allows us to live a more wealthy life.

When it comes to retirement, there are already many powerful tools available for long-term savings - things like employer retirement plans, IRAs, and other investment accounts. For our family, those vehicles already play a major role in long-term planning.

Using our HSA for current medical expenses helps us maintain more flexibility in our monthly cash flow, especially during seasons of life that come with higher expenses, like raising young kids. That's why we've chosen to use the account for what it was originally designed to do - cover healthcare expenses.

The most likely common strategy you'll hear is paying medical bills out of pocket, keeping receipts for decades, and reimbursing yourself much later in life after the account has grown while being invested. While that may work well for other people, it's not something I personally enjoy managing. Everyone has different comfort levels when it comes to record-keeping and long-term tracking, and it's important to choose an approach that actually fits your own habits, preferences, and lifestyle. You have to ask yourself, are you actually willing pull off this strategy over 30 years?

Earlier I showed a sneak peak of a company called Truemed (which I have no affiliation to). I love to see the vision and direction of the HSA with a company like this. They've found a way to incorporate incredible companies & products into the HSA spending lifestyle. If you truly qualify for a medical necessity letter, through their medical questionnaire process, you might be able to buy this equipment using pre-tax dollars, which is insane!! I truly hope this is the continued future direction of the HSA. I would love to see gym memberships and so much more automatically qualify. I know this is a personal finance video, but with the average US adult obesity rates sitting at 43.1% in 2024, I think one positive direction we could go is by making more health related expenses approved with pre-tax HSA funds.

Another thing I really appreciate about HSAs is the long-term flexibility. After age 65, HSA funds can be used for Medicare premiums and medical expenses, and they can also be accessed for non-medical purposes, subject to ordinary income taxes. That added flexibility provides peace of mind, even when using the account along the way.

If you have older HSAs from previous employers, consolidating them onto a single platform can make things much easier to manage. I personally like platforms that provide low fees, simple investing options, and easy transfers, so the account doesn't get neglected over time.

I'd love to hear your thoughts - do you mostly save your HSA, spend it, or use a blend of both? Drop a comment below.

And if you found this helpful, make sure to subscribe for more simple, practical financial education. I will see you next time!