Tips on how to maximize your investment with your HSA.
Please note: The investing information provided in this resource is for educational purposes only. The sources used do not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell stocks, securities or other investments.
Many people treat a health savings account (HSA) like any other savings account, one that holds money for them until they need it. But your HSA dollars can grow faster by investing them. You may be able to invest in your choice of stocks, bonds, ETFs and mutual funds to better fund your retirement or later medical care. Earnings from HSA investments are not taxed for Federal income tax purposes, which enhances their potential.
Think about it this way: if you are using your HSA to save for future medical expenses, you have two options:
- Don’t invest your HSA dollars: your money will grow at a flat rate year over year, and you’ll take out whatever you put in.
- Invest those dollars and make a return: investing your HSA dollars could lead to a net return, so you’ll take out a lot more money than you put in.
Despite the potential benefits of investing, less than 10 percent of HSA holders take advantage of investment opportunities.
Investing through an HSA
- Step one: See what investment options are available through your HSA provider. Then, enroll in the program. Some providers offer more HSA investment options than others.
- Keep in mind: some HSAs with investment options let you invest starting with the first dollar in your account. Others don’t let you begin investing until you reach a specific threshold. **
- Step two: Start adding money to your HSA. You’ll need to put money into the account before you can buy investments. *
- Take advantage of the triple tax benefit: HSA contributions are pre-tax and any interest or earnings from your investments made through your HSA account grow tax-free. Additionally, disbursements from the HSA will never be taxed if they are spent on qualified medical expenses.***
- Keep in mind: This is different from a 401k, where your distributions will be taxed as ordinary income.***
- Prepare for the long term: Let’s say you are an HSA-eligible family health plan. If you contributed $500 each month and invested it with a 5 percent net return, you would end up with $198,396 after 20 years. Just remember, after you are 65, your HSA disbursements will be taxed as ordinary income if you don’t spend them on qualified medical expenses. **
- Keep in mind: Make sure you follow all IRS contribution limits.
IRA to HSA rollover: If you don’t have money saved up for a medical expense, you can do a one-time rollover of your annual HSA contribution limit for that year from a traditional or Roth IRA into your HSA. *
* Benson, Alana. “How to Invest with Your HSA, and Why.” NerdWallet, 13 Dec. 2021, https://www.nerdwallet.com/article/investing/how-to-invest-hsa.
** Farrington, Robert. “How to Invest the Money In Your Health Savings Account (HSA).” Forbes, Forbes Magazine, 14 Apr. 2022, https://www.forbes.com/sites/robertfarrington/2021/02/15/how-to-invest-the-money-in-your-health-savings-account-hsa/?sh=39cd334a3a08.
*** “Tap into the Triple Tax Benefits of an HSA.” Bank of America, https://healthaccounts.bankofamerica.com/triple-tax-savings-advantage.shtml.