Dear Liz: For the first time, I signed up for a high-deductible insurance plan along with a health savings account. However, I don’t quite understand a couple of key concepts. When our medical bills roll in, will we pay using our personal credit card or the HSA card provided by my employer? We have no trouble using our personal card but is that the right way to use an HSA — by not using it, in effect? Also, I read that the unused HSA funds can be invested to grow tax-deferred. How does the money get invested? Does my employer have a relationship with a specific broker? Or can I invest unused HSA funds with any broker?
Answer: If you want your HSA balance to grow for retirement, then paying your medical bills out of pocket is the way to go. If you use your credit card to pay medical bills, however, make sure you can pay off the balances in full. The benefits of an HSA would be diluted if you were paying double-digit interest rates.
If you do need to access your HSA funds, you can use your employer-provided card to pay medical bills or submit receipts to the HSA administrator for reimbursement.
As you probably know, HSAs offer a rare triple tax break. Contributions are pre-tax, your account can grow tax-deferred and withdrawals for qualifying medical expenses are tax-free. Because the account can be invested and balances rolled over from year to year, many people treat their HSAs as an additional way to save for retirement.
Your employer has chosen an HSA provider that typically will offer some investment options, but usually you can transfer your balances to a different provider if you wish. Compare fees, minimum balance requirements and investment options. If you decide to move your account, ask your current provider to set up a “trustee-to-trustee” transfer.