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Advertisement Skip to Content * For Investors * For Business * About Us * Get 7 Days Free * * Sign In Sign In * Topics * Investing Ideas * Markets * Stocks * Funds * ETFs * Bonds * Portfolio * Markets * Stocks * Funds * ETFs * Bonds * Investing Ideas * Best Investments * Christine Benz’s Portfolios * Best Companies to Own * Best ETFs * Guide to 529 Plans * Asset Management Companies * Topics * Portfolio Construction * Economy * Sustainable Investing * Personal Finance * Retirement * Save for College * Start Investing * For Advisors * Alternative Investments * Media * Podcasts * Free Email Newsletters * Morningstar Magazine * Videos * Investing Definitions * Just For Investors * Morningstar Investor * Morningstar Investor Newsletters * Legacy Portfolio Manager Personal Finance MAKE THE MOST OF YOUR HSA BENEFITS AND INVESTMENTS IN 2024 Also, Morningstar’s rankings of the best health savings account providers and a breakdown of the HSA triple-tax advantage. Margaret Giles , Greg Carlson , Ivanna Hampton Nov 24, 2023 Share Volume 0% Rewind 10 Seconds Next Up This ad will end in 12 Live 00:03 00:11 00:15 Chromecast Closed Captions Settings Fullscreen Ivanna Hampton: Welcome to Investing Insights. I’m your host, Ivanna Hampton. Health savings accounts, or HSAs, offer a way to save for medical costs. People can use these tax-advantaged accounts today or wait for retirement. Morningstar has evaluated and ranked HSA providers on how well they help people meet their goals. I’ll talk with one of the researchers about this year’s best-of rankings. But first, Morningstar Inc. editor Margaret Giles explains how to work HSAs to your advantage. Thanks for joining me, Margaret. Margaret Giles: Thanks for having me. WHAT IS AN HSA? Hampton: Let’s start with an explainer. What’s an HSA? Giles: Sure. So there’s basically two pieces to an HSA. You can either use it as a spending account or an investing account, and you use it for medical expenses. So on the spending side, you contribute money to this account, you can then pull it out to pay for qualified medical expenses. On the other side, on the investing side, you can contribute to this account and then invest in mutual funds or whatever they have available to you, and then that money can grow and you can ultimately pay for costs down the road. HSA VS. FSA Hampton: So what makes an HSA different from a FSA, or a flexible spending account? Giles: Absolutely. So you can think of an HSA spending account really similarly to a flexible spending account. In both cases, you’re contributing money and you can take out that money and use it on qualified expenses. There’s basically more restrictions on an HSA upfront where you can only really contribute to one if you have a high-deductible healthcare plan; otherwise, you’re not eligible to contribute. A flexible spending count, on the other hand, you can contribute no matter what kind of healthcare plan you have. So depending on what your situation is, one might be better for you than the other, or you may only qualify for one. While there’s more restrictions, I’d say, on the front side of an HSA, you actually have a lot more flexibility in how you use it. So the biggest piece is the investing part of it. With a flexible spending account, you don’t have the opportunity to invest, versus with HSA, you can do that and think about what you’re doing down the road with your medical expenses. The other thing is this use-it-or-lose-it element of an FSA, which is a big one. With a flexible spending account, you decide upfront, “OK, I’m going to contribute X amount per year,” and then if you leave money in the account at the end of the year, you lose it. There’s some rollover, I think it’s $600 or so, but you have to be really careful about how you’re spending that money. And then if you leave your employer, it doesn’t travel with you, so there’s a lot of considerations there. Versus an HSA, you have it, you get to keep it. So, you can adjust how you’re contributing every month throughout the year. You don’t have to decide upfront. And then if you don’t happen to spend all that money in the account, it’s still yours. You get to keep it. And if you really want to save for the future, again, you can then invest it. If you leave your employer, you can keep that. You can have multiple HSAs at once. There’s a lot of flexibility there. So while they are similar on the spending account front, your HSA will actually afford you a lot more flexibility long-term. Hampton: You’ve got to really know how you will spend for your medical benefits or expenses over time. Giles: Exactly. I mean, if you have a high-deductible healthcare plan, HSA, great option, but that’s not for everybody. You might need a lower deductible, and that’s fine. FSA is still a powerful tool, but things to consider. HSA LIMITS ARE INCREASING IN 2024 Hampton: All right. HSA contribution limits are increasing next year. Can you give us a breakdown? Giles: They’ve actually gone up pretty consistently year to year, think of it as inflation. But the jump from 2023 to 2024 is pretty big. Looking at the numbers in 2024, if you’re just worried about yourself, that contribution limit per year is going to be $4,150. If you’ve got family coverage, that bumps up to $8,300, and that’s up from 2023 limits, which were $3,850 and then $7,750, so that’s an increase of $300 and $550, respectively, which is pretty significant. And keep in mind that it’s not just your contributions, it’s you plus your employer. If you have a job and your employer is also contributing to your HSA, you have to keep that in mind as well. Hampton: Because you don’t want to overfund it. Giles: Exactly. HOW TO MAXIMIZE THE TRIPLE TAX BENEFIT Hampton: HSAs come with these “triple tax benefits.” People are always talking about them. What are they, and how can someone maximize them? Giles: The three big tax benefits: First off, your money is going into the account tax-free, then it’s growing tax-free, and that’s whether you’re investing or spending. It’s growing tax-free. And then it can be withdrawn tax-free if you’re spending on qualified medical expenses. If you are less than 65 years old and you withdraw for something else, you actually get hit with a tax penalty, so keep that in mind. But even if you’re just using it as a spending account, the tax benefits are really significant because the contributions you make, if they’re pretax, pulled from your payroll, they are exempt from income taxes and Medicare and Social Security taxes. And then it gets even more powerful as you invest because all of that investment growth—your dollars are growing, and you don’t owe taxes on any of it. So, keep it in mind. And then if you save up until retirement, even if you don’t spend it on healthcare expenses, you only owe your income taxes on those distributions. So up to retirement, yes, only pay for medical expenses, but then even in retirement, you have flexibility beyond that. HOW TO SWITCH AN HSA PROVIDER Hampton: And what steps can someone take if their employer has picked an HSA provider that they don’t like and they want to switch? Giles: I would say, looking at our research, the whole landscape has really improved. Providers are lowering their fees, and a lot of improvements have been made in the investment options that people have, but not all HSA providers are the same. So you could get stuck, and you’ve got a couple options. In my mind, the best option is an HSA transfer. Basically take advantage of whatever employer contributions your employer’s making to their HSA provider of choice and take advantage of that pretax contribution, so you’re avoiding, again, the Medicare and Social Security taxes as well as the income taxes. And then you’re actually able to set up a transfer where the provider that your employer chose transfers money directly to another HSA provider. So you’re allowed to have multiple HSAs at the same time, and there’s no taxes in those transfers. You can do it as many times as you want, don’t worry about taxes, and then take advantage of whatever benefits that other provider offers. There’s also another option, and this is more, I think, recommended if you are leaving an HSA for good. For example, if you’re leaving your employer and now you have no reason to be part of that HSA, you can actually do a rollover, where instead of having the two providers basically communicate with each other, you receive a check from the one and transfer it to the other. The only rule there is that you just have to make sure that check you get from the one HSA goes into another within 60 days, and then you don’t have to worry about taxes or anything. The last restriction there is that you can only do it once a year, and so I think, in general, that transfer, which offers the more flexibility, is the better option. Hampton: Something to keep in mind for sure. Giles: Yeah. Hampton: Margaret, thank you for your time today and explaining how to maximize HSA benefits. Giles: Happy to be here. WHAT TO LOOK FOR WHEN SHOPPING FOR A HEALTH SAVINGS ACCOUNT Hampton: Let’s shift this conversation from how to maximize HSA perks to what to look for when shopping around for a provider. Plus, get insight into Morningstar’s rankings of best HSA providers. Here’s my conversation with Morningstar Research Services’ Senior Manager Research Analyst Greg Carlson. Health savings accounts, or HSAs, offer a way to save for medical costs. People can use these tax-advantaged accounts today or wait for retirement. Morningstar has evaluated and ranked HSA providers on how well they help people meet their goals. Morningstar Research Services’ Senior Manager Research Analyst Greg Carlson has more on this year’s top providers. Thanks for being here, Greg. Greg Carlson: Thanks, Ivanna. Great to be here. Hampton: We’re coming up on the 20th anniversary of HSAs. How far has the industry come? Carlson: HSA providers have improved their offerings over the years, certainly. Fees have come down to an extent. Investment and use have improved as well. Also, contribution limits have been raised over time, so participants have the ability to put away more money, both to pay for medical costs as well as save for the long term. The landscape has also changed. There have been a number of mergers in the industry over time, and occasionally a new provider emerges. The most recent merger was in late 2022 when UMB acquired the HSA Authority. Hampton: Morningstar grades HSA providers each year. What did researchers factor into their rankings? Carlson: We assess HSA providers on a number of measures. We start out evaluating them on two different use cases. First, as spending accounts for medical costs. Here, we look at maintenance fees as well as the interest rates being paid by providers on account balances. The second use case is as an investing account. We looked at factors such as the design of the investment venue, the quality of the investments, the fees being charged by those investments, as well as the HSA providers, and finally, the investment threshold. That is, most HSA providers require participants to have a certain minimum balance in their accounts before they’re able to access the menu of investments. Hampton: All right. And since HSAs can be divided into those two camps, spending and investing, let’s start with spending. What makes an HSA provider a good match for someone using their account to cover current medical costs? Carlson: If you’re simply looking for an HSA account to save toward ongoing medical costs, the two most important factors are low fees and a competitive interest rate on your savings. Maintenance fees are on the decline. Most of the 10 providers that we surveyed no longer charge a fee. Others typically waive the fee when you reach a certain savings balance. While interest rates have risen dramatically over the past two years, most HSA providers unfortunately do pay low rates on savings, often below the national average for FDIC savings accounts. BEST HSAS FOR SPENDING Hampton: Now, Morningstar ranked the best HSAs for spending. Who made the top three and why? Carlson: We have to start with Fidelity. It was the only HSA provider to earn a High assessment on its spending account features. Like many others, it does not charge a maintenance fee. And where Fidelity really distinguishes itself is on the interest-rate front. It recently paid about 2.7% on all account balances. All the other providers we surveyed paid 1% or less on FDIC-insured options, and some paid 0.1% or less on modest balances. Second and third would be First American Bank and HealthEquity, which don’t charge maintenance fees and at least paid competitive rates on balances above a certain amount. Hampton: Let’s shift to the goal of letting HSA contributions grow and using that cash in retirement. What should be on the checklist when looking for a provider in this case? Carlson: The first thing I would say here, Ivanna, is that the vast majority of participants do not use their HSAs to make long-term investments. One reason may be that minimum investment threshold that I just talked about. So, you should make sure that the provider in question has a minimum savings requirement that you can exceed in order to invest for retirement. You’ll also want a menu of investments that is easy to navigate, one that doesn’t offer a confusing mix of overlapping options or that loads up on volatile investments. And the investments themselves should be of high quality, well-managed, passive or active funds or ETFs. Fortunately, this is an area where all 10 providers are doing well. Every one of them earned an Above Average rating on this measure. And finally, you want to see low fees from both those investments as well as the HSA providers themselves. BEST HSAS FOR INVESTING Hampton: If you are using your HSA for investing, what are the top three for investing and why? Carlson: Here again, Fidelity earns the only high rating. The investments and the menu design are both rated Above Average. We think that the investment list is diversified without being overly complex, and fees are among the lowest in the industry. Associated Bank and HealthEquity are tied for second. Associated Bank’s menu design is one of the best around. It’s efficient, and it has just a couple of specialty options for diversification. Fees are only Average, though, on this plan. HealthEquity is kind of the opposite. The menu has lots of passive options that are cheap. Thus, it looks really good on fees. However, there are probably too many niche choices on that menu. Hampton: All right, Greg. Well, thank you for your time today and giving us a rundown on the best HSAs for investing and spending. Carlson: Thanks, Ivanna. Hampton: Thanks for checking out Investing Insights this week. Thanks to senior video producer, Jake VanKersen, and lead technical producer, Scott Halver. Subscribe to Morningstar’s YouTube channel to see new videos from our team. You can hear market trends and analyst insights from Morningstar on your Alexa devices. Say “Play Morningstar.” I’m Ivanna Hampton, a senior multimedia editor at Morningstar. Take care. READ ABOUT TOPICS FROM THIS EPISODE. What Happens to Your HSA in Retirement? What Can My HSA Be Used For? Can You Save Too Much in a Health Savings Account? The Best HSA Providers of 2023 Get unlimited access to insights like this on thousands of securities when you subscribe to Morningstar Investor. Start Free Trial The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies. SHARE THIS ARTICLE MORE ON THIS TOPIC 7 Great Investing Books for Beginners These books cover everything a beginner needs, from the basics of personal finance and investing to how the markets influence our money decisions. Carole Hodorowicz Should You Invest in Stocks, Bonds, or a 5% CD? As cash yields remain attractive, here’s how to think about your asset allocation today. Christine Benz Corrections and Clarifications Mike Eiler 6 Conversations About Money to Have With Your Family Over the Holidays Carve out some time to discuss financial planning. Amy C. 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