Trumpcare, officially known as the American Health Care Act, nearly doubles the amount of money you’re allowed to invest in a health savings account (HSA). HSAs were first introduced in 2003 to allow qualifying individuals with high-deductible health insurance plans to invest money with pre-tax funds, to grow the money tax-free, and to withdraw cash without paying taxes, provided those funds are used for qualifying medical expenses.
Under the current rules, individuals with a high-deductible plan can invest up to $3,400 in an HSA as of 2017, while up to $6,750 can be invested if a policyholder has a family plan. Trumpcare would raise the HSA contribution limits to match deductibles and out-of-pocket expenditures on healthcare, which means the contribution limits would rise to at least $6,550 for an individual and $13,100 for a family plan, starting in 2018.
HSAs have long been popular with the GOP, so even if Trumpcare does not pass in its current form, it’s likely any replacement for Obamacare will include provisions encouraging HSA use. And even if no reforms are made, health savings accounts still offer you some major tax breaks. If you have a high-deductible plan, you should be investing in an HSA — and you can easily open your HSA today by following these four simple steps.
1. Identify the institutions where you could open a HSA
Banks, brokerage firms, and credit unions are among the different financial institutions where you could potentially open an HSA. These institutions offer different pros and cons. Your local bank branch or credit union may offer easy access to your money and customer service, while a brokerage firm may be less accessible but provide a broader array of investment opportunities.
When you’re determining where to hold your account, find out how you’ll be able to access the money. Most institutions offer checks or a debit card, but some accounts make withdrawing cash more difficult, even going so far as to require disbursement and reimbursement forms. Easy access to HSA funds is key when you need care. You should also decide if you need a physical branch to visit or if you’d be happy with an online bank, which may offer lower fees.
To start the process, you could ask the institutions you already do business with — like the bank where you have your mortgage — whether they offer HSAs. The financial institution that holds your HSA account is called the custodian or administrator, and you’ll find that almost all major institutions offer an HSA option.
With a list of potential custodians in mind, you can start comparing them based on the criteria below.
2. Check the eligibility rules and minimum balance requirements
When you’ve made a list of financial institutions that could serve as the custodian of your HSA, check the rules for this type of account with each potential bank or brokerage.
The IRS says you’re eligible to invest in an HSA as long as you’re covered by a high-deductible health plan on the first day of the month, you aren’t claimed as a dependent on anyone else’s tax return, and you aren’t enrolled in Medicare or most other types of programs offering health coverage. Banks and brokerage firms may have their own eligibility requirements, such as mandating a minimum initial and ongoing balance to avoid added costs. Find out what the institution requires to ensure you’ll actually be able to open an HSA there.
3. Find out how fees work
HSAs have widely varying fee structures. Some charge a fee only if you do something wrong, like overdraft your account. Others charge fees each month or for each transaction, like when you withdraw funds to pay a doctor’s bill. You could also be assessed fees for opening your account, getting a new or replacement debit card, or transferring money between accounts.
You don’t want money for care costs to be eaten away by fees, so obtain a complete list of all you could be charged by a financial institution acting as a custodian. Select the bank, brokerage firm, or credit union that offers the best chance for you to invest without paying much for the privilege.
4. Determine the availability of different investment options
Some HSAs are designed for your money to be kept in savings. This is ideal if you have a lot of ongoing medical expenditures and thus need to withdraw funds regularly. Other HSAs are simply intended to let you take advantage of the tax benefits by investing in stocks for the long term, free of capital-gains taxes and dividend taxes.
If you don’t want to touch the money in your HSA for a while but simply want to let it grow, choosing an HSA with a wide range of investment options — like the option to purchase individual securities, index funds, and mutual funds — is often a better plan. It’s important to be aware, though, that while savings accounts are FDIC-insured and you will not lose your existing savings if the custodian goes under, you can lose money that you’ve invested in stocks. Equities come with both more risk and more potential reward and more risk.
Provided you choose the right low-fee or no-fee account and follow all the eligibility rules for HSA investing, opening an HSA could not only help you survive high healthcare costs, but also give you another tool to use to invest for retirement. If your care expenses are high as a senior, or at any time during your life, you can use your HSA assets to defray the big costs you face. And if you don’t end up needing the cash to pay for care, you can just pass the investment account on to your kids.
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