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When my daughter came home from a party in June with a horribly bruised finger, I had a bad feeling about it. I gave it a couple of days, but when it didn’t start to heal, I took her to an orthopedist. And lo and behold, her finger was broken. Not only did that mean several weeks without sports, piano, or other activities for my poor daughter, but it also meant an $850 medical bill for me to contend with.

Now, because my family maxed out our HSA last year at $7,300, we had enough of a balance in that account to cover the $850 orthopedist bill. But I opted not to raid my HSA and instead take the money out of my savings account for one big reason.

It pays to leave your HSA alone

When you have money in a flexible spending account (FSA), it pays to tap your balance as soon as you rack up medical expenses. FSAs require you to use up your plan balance every year or otherwise risk forfeiting some of your money.

HSAs work differently. With an HSA, there’s no time limit to using your funds. You can contribute to your account this year and withdraw that money in 2042 should you so choose.

Plus, HSAs allow you to invest money you don’t need to withdraw right away so you can grow your balance into a larger sum. And because investment gains in an HSA are tax free, that’s a tempting offer.

It’s for this reason that I opted not to touch my HSA when a large medical bill landed in my lap. Because I knew I had the money in savings, I figured it made more sense to take a withdrawal from there than to tap my HSA and lose out on the chance to invest that $850 in a tax-free manner.

See, over the past 50 years, the stock market has delivered an average annual return of 10%. Even if the returns I get in my HSA aren’t as high, let’s say I’m able to leave that $850 in my account for 20 years and score a 7% return on it. That still means growing that $850 into about $3,300.

I’m also well aware that healthcare costs tend to be higher in retirement than during people’s working years. So I’d rather have a larger HSA balance then, when medical spending might eat up a lot more of my income.

Plus, one cool thing about HSAs is that they effectively convert to a traditional retirement savings plan once you turn 65. What this means is that you’re not penalized for taking HSA withdrawals for non-medical purposes from that point onward.

So, let’s say you manage to amass a $200,000 HSA balance by age 65, and your health ends up being great during retirement. You’re not at risk of wasting or forfeiting that money because you can withdraw it for things like home repairs, groceries, and entertainment without penalty. All that happens is that non-medical withdrawals are subject to taxes (which is how a traditional IRA works), whereas medical withdrawals are tax free.

You need emergency savings to leave your HSA untapped

The reason my strategy of not touching my HSA for near-term medical bills works is that I have other funds set aside in savings to cover such expenses. If you want the option to leave your HSA untapped and invested as long as possible, then you’ll need to make sure to build an emergency fund that can cover unplanned medical bills.

If you take that step, you might end up with a lot of money in your HSA over time. And that could make for a far less financially stressful retirement.

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