With an HSA investment strategy, account holders can grow health care savings through mutual funds, ETFs or similar investments. While HSAs are commonly used for short-term medical expenses, the option to invest contributions allows for long-term compounding and potential tax-free growth. Choosing when and how to invest depends on individual healthcare needs, risk tolerance and time horizon.
A financial advisor could help you create a financial plan for your investment needs and goals.
What Is an HSA?
An HSA is a specialized savings account designed to help those with high deductible health plans (HDHPs) save for future medical expenses. In recent years, HSAs have become a more popular option offered to employees.
Essentially, when you have an HSA combined with a high-deductible health plan, you can lower your monthly premiums significantly over a traditional healthcare plan. If your budget allows, you can redirect those savings into your HSA.
As you build savings within this account, you can invest the funds for long-term growth. Plus, take advantage of plenty of special tax benefits. And combined with other investments, an HSA can help boost your retirement savings.
HSA Investment Strategy
The details of an appropriate HSA investment strategy will vary for everyone. Here are four key things to consider:
Consider the Value of an HSA
Before you jump into an HSA investment strategy, you should consider what value this type of account offers. Otherwise, it can be challenging to find the motivation you need to build savings in this unique account.
The tax rules surrounding HSAs are a big part of the value an HSA offers. Specifically, your contributions reduce your taxable income and your money will grow tax-free while in the account. Plus, you can make tax-free withdrawals if the money is used for a qualified medical expense. This structure offers a triple tax benefit.
Maximize Your Contributions
With the tax savings opportunities in mind, it makes sense to prioritize your contributions to an HSA. But how much can you contribute? In 2025, you can contribute up to $4,300 as an individual or up to $8,550 as a family.
Of course, you might not have the means to max out your HSA contributions. And that’s okay! But it is a good idea to contribute what you can regularly. For example, let’s say you save $50 per month by switching from a traditional health plan to an HDHP. If possible, funnel those savings directly into your HSA.
Select an Asset Allocation
An appropriate asset allocation will vary based on your risk tolerance. That fact doesn’t change when you are investing through an HSA.
Here are three common allocations:
- 60/40 portfolio: You’ll split your assets with 60% in stocks and 40% in bonds.
- 80/20 portfolio: You’ll split your assets with 80% in stocks and 20% in bonds.
- Age-based: As you age, your risk tolerance declines. And with that, you may need to adjust your asset allocation over time.
In many cases, you may decide to put your HSA dollars into a less risky strategy. That’s because at least some of these funds need to be available for when you incur a healthcare expense.
Reimburse Yourself Later
An HSA is designed to cover your health care costs. But there is no timeline for your reimbursement requirements. You can hang on to healthcare receipts and reimburse yourself when you actually need the funds.
For example, let’s say that you have a $500 medical bill this month. You can use monthly income to cover the cost instead of withdrawing from your HSA. So, you hold on to the receipt. In 10 years, you have an expense that requires dipping into your HSA. At that point, you can turn in the $500 receipt and pull out the funds without paying taxes on the withdrawal.
So why would you wait to reimburse yourself? Reimbursing yourself later means your invested HSA funds can continue to grow. With more time to grow, your HSA portfolio may perform better if you delay withdrawals.
Bottom Line
You can use an HSA to build savings for medical expenses in retirement. If you are choosing to invest in an HSA, make sure that your investment strategy aligns with your financial goals. And don’t forget to make regular contributions to watch your HSA grow.
Tips to Build HSA and Retirement Investments
- An HSA is a great way to build a portfolio to cover future medical expenses. Consider working with a financial advisor to map out the best retirement savings strategy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and 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.
- If you want to figure out whether you are saving enough for retirement, SmartAsset’s free retirement calculator can help you determine how much you will need.
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