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Q&A: Contribute to a Health Savings Account?

Determine if it suits your medical needs.

Question: I had a health savings account, but it was cancelled because of changes within my company.  I then decided to replace it with a form of health insurance that I believe is recognized as an HSA. Can I keep contributing to this even though it’s not a traditional HSA?

Ric: You say that your policy does count as an HSA. We would need to verify that; but if you’re right, then, yes, you should be able to contribute to it as you would a traditional HSA.

However, I have a different concern. Regardless of whether you are allowed to put money into an HSA, the better question from a strategic point of view is should you? And if so, how should that money be invested?

Let’s first explain the purpose of an HSA and how it works. Essentially it allows you to save money to pay for qualified medical expenses whenever they arise — now or far into the future — without paying income taxes on the money when you withdraw it. There are limits on how much you can contribute yearly (currently $3,500 if you’re single and $7,000 for family coverage, plus a $1,000 catch-up contribution in either case if you’re 55 or older).

The advantage is that, while the money remains in the account, it grows tax free and can be withdrawn tax free if used for medical expenses.

The downside is that you don’t know when you’re going to need it. Will you incur that medical expense this year or in 20 years?

When a client wants to invest money, we always ask: “When are you going to use the money?” If the client will need it soon, we recommend bank accounts. If the money won’t be touched for many years, we can invest it in a highly diversified way. But when it comes to health care spending, you have no idea when you might fall ill or have an accident, and that creates a dilemma as to how you invest the money.

For the most definitive answer, you should call our office at (888) PLAN-RIC or contact us online. We can tell you how much you should contribute to the plan and how the money should be invested.

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