Does It Make Sense To Pay Medical Expenses With Cash Instead of Using HSA Funds?

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If you have a health savings account (HSA), you may be wondering how to get the best use out of it.

As an HSA is a tax-advantaged account, you can invest the money you contribute to it. And if your health insurance policy includes a high deductible, an HSA can help you cover out-of-pocket medical costs.

HSAs: A Superior Retirement Account

Money expert Clark Howard says an HSA is a great way to use pre-tax dollars to pay for expensive health insurance deductibles, but it’s also a great retirement account. Because of this, he wants you to have some strategy behind the way you use your HSA.

“HSAs are the absolute best tools we have to save for retirement because they have a triple tax benefit,” Clark says.

  • Benefit #1: You’re able to use pre-tax dollars to fund your HSA.
  • Benefit #2: That money grows tax-free.
  • Benefit #3: You’re able to spend the money way down the road tax-free.

“So you took pre-tax dollars you never paid tax on, they grow tax-free all through the years and then you spend them tax-free at the end of the game. Best, best, best,” Clark says.

But does it make sense to pay medical expenses with your HSA?

Should You Pay for Medical Expenses With Your HSA?

Clark says, yes, you can pay for your medical expenses with your HSA, but it’s a conditional yes.

“If you can afford to pay the medical expenses that you face [with your HSA], pay them with cash, let the HSA continue to grow,” Clark says. “However, if you’re doing this for a long-term play, a long-term strategy, I don’t want you in an HSA that’s a savings account kind of vehicle, I want you in investments.”

How To Invest HSA Funds

Clark says investment companies are great places to put your HSA funds.

“Fidelity is a very good player in the HSA market with the ability for you to do ultra-low-cost investing with your HSA money and have it grow all through the years much later in life, typically in retirement,” he says.

With the stock market’s annual growth rate of around 10%, by investing just $100 a month over 10 years, you could yield about $120,000.

Learn more about HSAs with:


Here’s more about the best investment companies.

Final Thoughts

Clark says if your financial situation allows you to pay for medical expenses out of pocket, leave your HSA alone.

“If you think over the years, over the decades, that you can pay your deductibles with cash on hand, you want that HSA to build,” Clark says. “You want it to grow, and you want to invest the money, not save it,” he says.

And what happens when you’re older? “That’s when you start drawing on it to pay medical expenses,” Clark says.

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