Should I withdraw from a HSA with no investment options?

Question

I opened an HSA account with my bank and funded it for 3 years. It gets about 1% interest/year and there are no options to invest the money in funds/stocks/etc. I no longer have a HDHP, so I cannot contribute to it. My accumulated qualifying health expenses are more than enough to do a full distribution of all the money in my HSA without any penalties or paying tax on it.

Given that there aren't any investment options and that I can currently get all of the money out tax free, should I pull the money out of my HSA and invest in a non-retirement Vanguard account (at my appropriate tolerance for risk)? It seems like even a very low risk 3% return/year ETF would be a better option than the tax free 1% growth.

Answer 1

If you have enough medical expenses to empty your HSA tax free, that is certainly an option. However, you have another option. You could roll your HSA funds over to a different HSA that has better investment options. Doing this has a huge advantage over any other taxable account or retirement account: it will grow tax free, and you will be able to withdraw tax free at anytime, as long as you accumulate enough medical expenses to cover your gains.

If you don't have a lot of money in your HSA now, it might not be worth the effort to maintain an HSA and continue to track your medical expenses. But if you have enough in there to invest, moving it to an investable HSA is probably a better option than simply moving it to a taxable account.