Love them or hate them, it’s hard to see health savings accounts losing traction any time soon. Used in conjunction with high-deductible healthcare plans, the accounts have been touted as a way to put downward pressure on healthcare costs. Even though HSAs are the only triple tax-advantaged vehicle in the tax code—allowing for pretax contributions, tax-free compounding, and tax-free withdrawals for qualified medical expenses— .
HSA critics point out that the high-deductible healthcare plan/HSA combination is a good fit for the “healthy and wealthy” but is apt to be less advantageous for lower-income workers. But even wealthy consumers may avoid taking full advantage of their HSAs because the HSA their employer has chosen to accompany their high-deductible healthcare plan simply isn’t very compelling. Here’s a closer look at how to know if an HSA is subpar, and the best ways to get around it if it is.
Valuable Tax Advantages May Come at a Price Based purely on the tax advantages, HSAs appear to have it all over other tax-advantaged savings vehicles, especially for investors who know they will have some out-of-pocket healthcare expenses down the line. Yet HSA expenses and/or shortcomings on the investment front can erode the accounts’ prodigious tax benefits. That’s particularly true for smaller HSA investors: Not only do flat dollar-based account-maintenance fees (say, $45/year) hit smaller HSA investors harder than ones with larger balances, but interest rat.
