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How to Make Sure Your HSA/401k Contributions Are Invested

Contributing to your HSA or retirement account is a great first step. But your savings could just be sitting in cash. Here’s how to ensure they’re invested.

February 14, 2022

If you’re putting money into a tax-advantaged account like a health savings account (HSA), or a retirement account like a Roth IRA or 401(k), you’re on the right track. Contributing to these accounts offers huge perks and can help you get closer to your long-term financial goals.

However, just contributing to these accounts is not enough — you need to make sure that your savings are also invested in assets like stocks or bonds. 

This guide will go over how to invest 401(k) or HSA funds, dive into how an HSA works, and help you answer some other common questions you might have, like “How much should I contribute to my HSA?” and “How much can I contribute to my 401(k)?” Let’s dive in.

Are my HSA or 401(k) contributions automatically invested?

To contribute funds to a 401(k), IRA, or HSA, you’ll usually ask your employer to withhold a certain amount of income from your paycheck, or you might manually transfer money into the account. 

Either way, this is only the first step

By default, when you contribute money to one of these accounts, the funds will be kept in a cash settlement account, or perhaps a money market account

This means that your contributions are not actually invested and will not grow or earn interest

For long-term growth of your money, you want to make sure that you take the extra step and invest your funds into stocks, bonds, ETFs, or mutual funds

How can I invest my funds?

The good news is that you don’t need to be a financial whiz to invest your HSA or retirement funds. 

Typically, you’ll need to set up how you want your funds to be invested, and then all future contributions will be invested in the same way.

The specific method for how to invest HSA funds or 401(k) funds will vary depending on which company manages your plan. Here are some things to keep in mind:

  • You can talk to your HR department about how to invest 401(k) funds or HSA funds

  • You can create an online account with the plan manager to manage and review your investments

  • Most accounts will offer the choice of investing in stocks, bonds, mutual funds and more

  • Many people find buying diversified index funds to be the simplest approach, like a total stock market fund, or an S&P 500 fund.

  • Try to minimize any investment fees to improve your long-term returns

  • Set up recurring investments to make sure all your future contributions are automatically invested

 Check out our Investing 101 Guide to learn more about investing basics. 

How do I know if my funds are being invested?

For beginners, it can be confusing to tell if your money is being invested or not.

To find out, you’ll need to have access to your online account. This will usually be managed by a broker, like Fidelity or Vanguard, or through a plan manager like Empower or Employee Fiduciary. If you’re a government employee, your account may be managed by a government agency. You can work with your company’s human resources department to find out who your broker or plan manager is, and how you can set up an online account. 

Once you’ve set up an online account, you can review your contributions, and see where and how your money is invested. 

If your money is invested, you will see what it’s invested in — usually index funds, or a target date retirement fund. 

If it’s not invested, the money will likely be sitting in a settlement fund, money market fund or may just be labeled “cash.” If this is the case, make sure to set up your investment plan for all future contributions.

How much should I contribute to my HSA?

Wondering how much to contribute to your HSA? Simply put, it depends on your personal finances. Contributing to an HSA is a smart move for tax advantages, but it’s important to examine your personal finances before deciding on an amount.. If you’re considering an HSA, find out if your employer also contributes, as this is the case at some companies. 

On the flip side, there is a limit to how much you can contribute. For 2022, the HSA limits are as follows:

  • $3,650 per year for self-only plans

  • $7,300 per year for family plans

  • Those over age 55 can make an additional $1,000 contribution each year ($4,650 total for self-only plan)

Keep in mind that these limits are for employee + employer contributions combined. That means that if your employer contributes to your HSA for you as a job perk, you’ll need to account for this when calculating how much you can contribute on your own. 

Finally, while HSA contributions are valuable, retirement plans like a 401(k) or Roth IRA are also important. It’s a good idea to consider your financial goals when deciding where to contribute your money.

How does an HSA work, exactly? Check out our complete guide to the health savings account (HSA) for more information. 

How much should I contribute to my 401(k)? 

Much like an HSA, how much to contribute to your 401(k) is largely up to your personal finances and how much you can afford to set aside out of each paycheck. The maximum amount that you can contribute to a 401(k) in 2022 is $20,500. This is an increase of $1,000 over the previous year’s contribution limit. 

However, unlike HSA contributions, this limit is only for employee contributions. If your employer offers 401(k) employer matching, money that your employer contributes will not count towards this $20,500 maximum limit. 

Wrapping up

Contributing funds to HSA or 401(k) accounts is an important step towards reaching your long-term financial goals. But be sure that your funds are actually being invested so that they can grow over time.

 Finally, if you have any high-interest debt, you may want to consider paying that off aggressively, while also contributing to your HSA and 401(k). 

Tally† may be able to help you consolidate and pay off high-interest credit card debt with a Tally line of credit. Tally helps qualifying applicants pay off their debt more efficiently, and save money on interest along the way. Learn more about how it works here.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.