Can I Self-Direct my HSA…and Should I?

There’s a lot in the news these days about self-directed retirement accounts, such as real estate IRAs, gold IRAs, and the like. Some people with health savings accounts (HSAs) have been wondering if HSAs can be self-directed, and if they should be moving in the same direction.

What is a self-directed HSA?

It is possible to self-direct your health savings account. You aren’t limited to investing it in conventional bonds, stocks, mutual funds and CDs.

In fact, just like self-directed retirement accounts, it’s possible for you to be more aggressive with your self-directed HSA and put your money in a whole variety of investment vehicles, including real estate, precious metals, closely-held businesses, and more.

Is it right for you?

That doesn’t mean it’s always a good idea.

The primary purpose of a health savings account is to pay for medical expenses that happen before you reach your deductible. Therefore, you need income, and you need to maintain liquidity in the account. You either may need to quickly pay up to your deductible amount for a big expense or parcel it out over the year on routine medical expenses before reaching the deductible.

Liquidity is key

If you have your HSA invested in raw land or real estate, you might not be able to sell it quickly enough; you’d have to liquidate other assets to pay your medical bills. And this defeats the purpose of the health savings account.

As a result, many don’t believe self-directed HSAs are worth it, given the liquidity issue as well as the limited contributions and all the special rules.

When it may work

Where it may make sense is if you are in excellent health, with no children, and every expectation of reaching age 65 without a significant health issue. At 65, you would qualify for Medicare, and then could take a longer-term view with the investments inside your HSA.