What is the Downside of an HSA?

Wellman Shew

July 22, 2022


The upside of an HSA is that you’ll be able to use the funds for future qualified medical expenses, even if you change jobs, retire, or change health insurance plans. An HSA is like a bank account in your name, where you decide how to use the funds. But the downside of HSA is that you may have limited investment options. You may also find that the investment costs are higher than in a 401(k). If you are unsure if you qualify, read on.

Investment options in an HSA may be limited

Investment options in an HSA may be limited if you are on Medicare. Your annual contribution limit may not allow you to contribute more than the HSA has allowed. In addition, you may have to use your HSA funds before you reach retirement age to continue receiving employer-sponsored health insurance or pay for Medicare premiums. If this is the case, you should carefully consider other investment options. Listed below are some of the options available to you.

You can invest the funds in an HSA to earn tax benefits while saving for future medical expenses. Some HSAs offer tools to choose the right investments and may even have automatic rebalancing. Other HSAs allow you to select specific investment funds and track their performance. If you have a significant amount of money to invest, investing in an HSA can help you grow your money faster than saving it on your own. Keep in mind that investment options in an HSA may be limited if it is offered by an employer.

Investment costs may be higher than in a 401(k)

Some advisors say that the high fees charged by HSAs should dissuade investors from switching their money to this plan. Besides, HSAs offer a better tax treatment and the opportunity to use HSA funds for medical expenses during retirement. Some advisors say that HSA fees are 50 basis points higher than 401k fees. But, this comparison is misleading, as it could lead to investors of HSA rather than a 401k.

The main reason why people should invest in a 401(k) plan is that they can take advantage of company matching on their retirement savings. Besides, they can never pass up the opportunity to receive a company match for their retirement investments. However, HSAs may charge some fees, such as monthly account maintenance, check-writing fees, and other transaction fees.

Tax savings by HSA

While most people think of a way to pay for qualified medical expenses for the current year, it can also use as a retirement vehicle. By using it for retirement planning, an HSA can be a great tool for maximizing your retirement savings. The downside of an HSA is that you must withdraw your funds before you turn 65, but if you have no plans to use it until you’re 65, you can keep the money invested.

The upside is that you can withdraw the money anytime you need it. You can use it for qualified medical expenses, including vision care, dental care, and sunscreen. You can even use of funds for dependents who are not cover health insurance. If you’re planning to retire soon, HSAs are a great way to protect your money from tax-collection penalties.


Health savings account, or HSA, is a tax-advantaged retirement account that allows employees to contribute money directly to the fund and earn tax benefits. The benefits of HSAs are numerous for employers, from tax benefits to employee participation. An HSA is beneficial to both employers and employees. Here are three reasons why you should consider an HSA for your company. These savings programs offer three key tax advantages to employers.

First, allows you to save money tax-free on your health care expenses. In the past, it was better to opt for a high-deductible plan and a copay option. But today, high-deductible health plans have tax advantages. You can save money for your health expenses in an account, and your employer will reimburse you.