Money deposited in HSAs by individuals or their employers generally isn't taxed and may be kept in cash or invested. Contributions are capped at $3,100 for an individual and $6,250 for families in 2012, according to Internal Revenue Service rules. Funds in HSAs may be rolled over from year to year and accounts are portable if workers change jobs.
Average balances of HSAs administered by Bank of America rose to more than $1,600 last year, a 10 percent increase from 2010, according to the statement. At JPMorgan the average HSA balance increased 4 percent last year to $1,547, the report showed.
While most HSA account holders keep their savings in cash to spend on medical expenses during the year, more people are investing funds as balances rise, said Szymanski. Last year about 9 percent of individuals with an HSA investment account at JPMorgan had a balance of more than $20,000, compared with 3 percent in 2009, she said.
Like 401(k)s
Individuals with HSAs at JPMorgan need at least $2,000 before they can start making investments, Szymanski said. Account holders at Bank of America may invest money in excess of $1,000, said Raniszeski.
"There will be a time where the menus are going to be diverse like 401(k)s," Kevin Crain, head of institutional retirement and benefit services at Bank of America Merrill Lynch, said in a telephone interview referring to investment options in HSAs. Other banks and mutual-fund firms including Wells Fargo & Co. and Fidelity Investments also administer HSAs.
Earnings and withdrawals from the accounts are tax-free if used for qualified medical expenses, otherwise there's a 20 percent penalty, according to IRS rules. After age 65 or becoming disabled, account holders may take money out of their HSAs for non-medical reasons without a penalty and pay ordinary income tax on withdrawals.