A self-directed health savings account (HSA) follows the same IRS rules that regular HSAs do. Self-directed plans have the same annual contribution limits and eligibility requirements. They provide a way to build tax-free funds you can spend on qualified medical expenses throughout your lifetime. So, how is a self-directed health savings account different than a regular HSA?
The edge a self-directed HSA has over the conventional account is the ability to invest in alternative assets.
People self-direct retirement plans and other savings accounts because they want control. There is a certain security in making your own investment choices. There is great freedom when you don’t depend on Wall Street to earn income in tax-advantaged accounts. Self-directed health savings accounts give you control over your own investing decisions just like a self-directed IRA. And, yes, that means that you choose the assets for the account, not a broker or account custodian.
Alternative Investments for a Self-Directed Health Savings Account
If you self-direct your HSA and invest in things like real estate or private equity—things you know and understand—just imagine the potential growth that you could achieve to cover qualified health care costs for you and your family.
And there is a large pool of investment opportunities waiting for you:
- Single family homes
- Multifamily condos and apartments
- Commercial property
- Real estate investment trusts (REITs)
- Fix-and-flips
- Rental property
- Real estate syndications
- Farmland, crops, and timberland
- Overseas property
- Tax liens and deeds
- Private mortgages
- Mobile home parks
- LLCs, LLPs, and trusts
- Oil, gas, and/or mineral rights
- Private equity and private stock
- Crowdfunding opportunities
- Businesses, franchises, and startups
- Futures and foreign exchange (forex) trading
- Hedge funds
- Cryptocurrency
- Precious metals
- …and many other investment options
Self-directed HSAs allow you to capitalize on the account’s tax-free earning potential by investing in assets you know and understand. Plus, you get the benefits that all HSAs offer.
Benefits of HSAs:
- Contributions to HSAs are made with pre-tax dollars and are tax deductible
- Unused funds roll over into next year’s funds
- The interest earned in the account is not taxable
- Accounts are offered by some employers, banks, insurance companies, etc.
- If you change employers, your HSA follows you
- Anyone can contribute: your employer, family member
- Employer contributions are not counted towards your income
A Self-Directed Health Savings Account Is a Powerful Retirement Planning Tool
These plans can significantly supplement retirement income provided you’ve amassed adequate funds in the HSA when you retire. And, when you are able to invest your account into diverse assets besides stocks, bonds, and mutual funds—you have the chance to increase that earning potential.
The extra funds you build in your HSA can keep you from dipping into your retirement plan funds.
If you experience a major, unexpected health issue you can use funds from that account instead of depleting your retirement funds. You can use HSA funds to pay for copayments, deductibles, coinsurance, along with other qualified health care expenses. Note: If you take the funds out for any other reason, you’ll pay a stiff penalty and face a tax liability.
However, once you are 65 years or older, you’re entitled to take penalty-free withdrawals to spend on anything. Understandably, those withdrawals are taxable if the funds aren’t spent on qualified health care costs. But if the account holds substantial funds when you retire—some things outside the spending restrictions may very well be worth paying tax on!
Want to Learn More about Self-Directed HSAs?
If you are interested in learning more about self-directed health savings accounts, contact Advanta IRA today. We are always happy to explain how these plans can be incorporated into your investing and retirement planning strategy.
