The Risk of Losing Money with Health Savings Accounts

Use a HSA to pay your health-care expenses.
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Unexpected medical costs wreak havoc on your budget. A Health Savings Account can alleviate the sting by providing an avenue to pay medical bills while helping you save money on your tax bill. HSAs are tax-advantaged accounts that can be used for qualified medical expenses. HSAs are widely considered safe, but come with some risks of losing your principal balance. Every account fee, bad investment choice and tax penalty incurred takes money out of your pocket.

Unused Money

HSAs come with a maximum yearly contribution limit -- $3,250 for singles and $6,450 for family plans. Unlike the Flexible Spending Account counterpart, HSA plans are not use-it-or-lose-it plans. Any balance left at the end of the year is rolled over. As long as the money sits in your account, you aren't at risk of losing your money due to inactivity.


HSAs come in a variety of options: standard checking accounts, money market accounts and investment accounts. With the checking or money market accounts, your money is relatively risk-free. The bank is FDIC-insured against bank failure. Your money earns a specified rate of interest. But with the investment account, you risk your money. Investment HSAs put your money in the stock market -- typically mutual funds -- which offer the potential for a higher rate of interest if you assume the risk. If you pick the wrong investments, you could lose some of your principal and interest in the account.

Tax Implications

The HSA is intended for paying qualified medical expenses. Withdrawing your balance for any other reason triggers tax implications. Taxpayers under age 65 are hit with income taxes and a 10-percent early withdrawal penalty. Those over 65 do not pay an early withdrawal penalty but still pay income taxes. You risk losing money if you use the account for non-medical expenses.

Account Fees

Every fee you pay to your provider is a drain on your HSA account. Many HSA providers charge a monthly or annual fee for the HSA. You may also face a per-transaction fee. Other fees including account setup, debit card replacement, transfer fees and overdraft fees. Your HSA provider can provide a full listing of the fees associated with your account.

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