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HSA Investment Strategy: Guide


A health savings account (HSA) offers the opportunity to build an investment portfolio to cover future medical expenses. This specialized account could be a game-change in retirement with the right investment strategy. Let’s break down how you could use your HSA as an investment tool for retirement.

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 that is designed to help you 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. Hopefully, your budget allows you to put those savings directly 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. Before you jump into an HSA investment strategy, it is critical to consider the value this type of account brings to the table. 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. Plus, you can even make tax-free withdrawals if the money is used for a qualified medical expense. That’s a triple tax benefit worth pursuing.

Contribute as much as possible. With the tax savings opportunities in mind, it makes sense to prioritize your contributions to an HSA. But how much can you contribute?

In 2022, you can contribute up to $3,650 as a single person with a high deductible health plan (HDHP). Or up to $7,300 as a family with HDHP coverage.

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.

Choose an asset allocation that reflects your risk tolerance. 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, your asset allocation may need some adjustments along the way.

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. Instead of pulling the funds out of your HSA, you can cover the cost with your monthly income. 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 that the funds invested in your HSA can continue to grow. Since time is on your side as an investor, the hope is that your portfolio will be allowed to reach its full potential if you can avoid taking out any funds.

Bottom Line

SmartAsset: HSA Investment Strategy Guide

An HSA can help you 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 qualified financial advisor to map out the best retirement savings strategy. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one 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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