How to Invest With an HSA

When you understand how to invest with a health savings account (HSA), you have the opportunity to save for medical expenses while also building wealth. HSAs provide a triple tax advantage: your contributions are tax-deductible, earnings grow tax-free and withdrawals for qualified medical expenses are tax-free. When considering HSA investment options, you have a variety of choices, including stocks, bonds, and mutual funds. Some HSA providers may also offer pre-built investment portfolios based on your risk tolerance and financial goals.

For help with financial planning via an HSA, consider speaking with a financial advisor.

What Are HSAs?

The funds in a health savings account (HSA) are versatile because they can often be used for a wide range of medical expenses. These eligible expenses include doctor’s visits, prescription medications, certain types of dental and vision care and even some over-the-counter medications.

This flexibility allows account holders to use their HSA for routine healthcare needs, as well as unexpected medical costs. Additionally, HSA funds can be used for long-term care expenses and certain health insurance premiums, further enhancing their utility.

HSAs are not just for current medical expenses, either, as they can also be a strategic component of a larger retirement plan. After age 65, you can withdraw HSA funds for non-medical expenses without penalty, though such withdrawals will be subject to income taxes, similar to a 401(k) or IRA. This feature makes HSAs a valuable savings tool, allowing individuals to save for both healthcare and general retirement needs with just a single account.

However, the primary allure of HSAs lies in their triple tax advantage.

When you contribute to an HSA, you can deduct those contributions from your taxable income, reducing your overall tax liability in the current tax year.
Your funds then grow via their investments tax-free, allowing your savings to compound over time without the intervention of Uncle Sam.
Finally, when you withdraw funds to cover qualified medical expenses, these withdrawals are not subject to taxation.

This tax efficiency is the hallmark of HSAs.

How to Start Investing With Your HSA

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). Most banks, credit unions and financial institutions offer HSA accounts. Additionally, many health plans partner with special institutions to offer them.

The process for opening an HSA is straightforward. You must provide personal identification and proof of HDHP enrollment, as well as a potential minimum opening deposit. Once your account is active, you can start contributing funds immediately.

Funding an HSA can be done in several ways. Contributions can come directly from your paycheck, your employer or personal deposits.

The annual contribution limit for 2026 is $4,400 for individuals and $8,750 for families, with an additional catch-up contribution of $1,000 allowed for those 55 and older. This is an increase from the 2025 limits of $4,300 for individuals and $8,550 for families. From there, any unused funds roll over each year, building wealth over time.

Once you fund your HSA, you can begin investing your money. Before selecting your HSA investments, ensure you have sufficient liquid cash in your HSA to cover any immediate medical expenses. Most experts recommend keeping at least some cash to cover medical expenses before investing – for example, experts at Charles Schwab recommend saving at least two to three years’ worth of routine medical expenses.

Remember, the primary purpose of your HSA is to cover medical expenses, so it’s essential to balance investment growth with your family’s liquidity needs.

Investment Strategies for HSAs

HSA investing typically starts with a basic cash account with minimal interest-earning potential, similar to a traditional savings account. However, the other half of your HSA works as an investment account where you will actually invest your remaining funds.

Most HSA providers offer a few types of HSA investment options.

Mutual funds and exchange-traded funds (ETFs). Generally speaking, mutual funds and ETFs are popular choices due to their inherent diversification, which can reduce risk while providing potential for growth.
Individual stocks. Individual stocks, while riskier, offer greater control with the possibility of higher returns.
Bonds. Bonds, in comparison, are extremely safe but often have weaker return potential.

Customizing your HSA investments starts with assessing your risk tolerance and financial goals. If you’re risk-averse and prefer stability, you might lean towards bond funds or cash accounts. These options tend to be less volatile and can offer more reliable, albeit lower, returns.

On the other hand, if you’re comfortable with more risk and are aiming for higher returns, you might opt for equity funds or individual stocks. This approach can lead to significant growth but carries the risk of greater fluctuations due to stock market volatility.

A balanced approach can be effective for many HSA investors. Combining a mix of safe and growth-oriented investments can provide balance. For example, you might allocate a portion of your HSA to a stable bond fund, while investing the remainder in a diversified stock index fund. This HSA strategy helps manage risk while allowing you to potentially benefit from some of the market’s more lucrative opportunities.

Regularly monitoring and adjusting your HSA investment portfolio is always important. Financial markets change, and so do your personal circumstances and healthcare needs. Periodically reviewing your investments will help ensure they remain aligned with your goals.

Consider rebalancing your portfolio annually or when there are significant changes in the market or your personal life.

Drawbacks of Investing With an HSA

Of course, there are both pros and cons of HSAs.

One major drawback of an HSA is that you must enroll in an HDHP to qualify. These plans typically have lower premiums but higher out-of-pocket costs. Therefore, they may not be suitable for everyone, especially those with regular medical expenses, making this requirement a barrier for some consumers.

Beyond that, investing HSA funds carries the same risks as other investment accounts. Market fluctuations can affect investment value with no guarantee of returns.

Additionally, some HSA providers charge maintenance fees that can eat into the account’s balance and returns. It’s important to understand these costs so you can choose an HSA provider that aligns with your needs.

Investing With HSAs vs. 401(k)s and IRAs

When comparing HSA investment options to those of 401(k)s and IRAs, there are several notable differences.

HSAs often allow a range of investments similar to IRAs, including stocks, bonds and mutual funds. However, the primary goal of an HSA is to cover medical expenses, so it offers the ability to save for both healthcare and retirement. Their triple tax advantage also includes pre-retirement withdrawals for qualified expenses, which is something IRAs and 401(k)s do not allow.

In addition, 401(k)s benefit from employer matching contributions, which HSAs often lack. IRAs offer the broadest range of investment options, giving individuals more control over their retirement strategy, but they lack the healthcare-specific perks of HSAs.

Strategically using HSAs alongside 401(k)s and IRAs can be a beneficial approach. For instance, you can contribute enough to your 401(k) to receive employer matching, while also utilizing an IRA for investment flexibility and an HSA for tax benefits.

HSA Provider Differences and Account Requirements

HSA providers vary widely in how they structure their accounts.

Some require a minimum cash balance before allowing investing, while others permit investing from the first dollar. These rules can affect how quickly an account holder can move funds into investment options.

Fees also differ across providers. Some charge monthly maintenance fees, investment account fees or trading fees. Others may offer investment platforms for no added cost. Reviewing these fees is an important step because they directly affect the account’s long-term growth.

Investment menus differ from one provider to the next. Some offer only a small set of mutual funds, while others give access to index funds, ETFs or broader fund lineups. The number and type of available options will shape how an account holder builds their HSA investment allocation.

Providers may also set policies on transferring funds between the cash and investment portions of the account. Some allow frequent transfers, while others use scheduled sweeps or impose minimum transfer requirements. These operational rules influence how flexible the account is.

These differences mean that HSA account holders may have very different experiences depending on where they open an account. A provider’s fees, minimums and platform features play a key role in how an HSA functions as both a medical-expense tool and an investment vehicle.

Bottom Line

Mother and child with their pediatrician.

For those considering HSA investment options, first consider the account’s advantages and disadvantages as part of your broader financial strategy. HSAs provide tax advantages such as tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses, making them a standout among other tax-advantaged accounts. HSAs not only cover immediate healthcare costs but they also serve as a strategic investment option for long-term growth.

Tips for Managing Your Retirement Money

A financial advisor can help you with managing many types of investments, even they’re in an HSA. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
There are a number of different ways you can manage your money before and during retirement. Here are a wide range of different retirement strategies you can check out.