Can You Invest HSA Money in Stocks?

Health Savings Accounts (HSAs) serve as a tax-advantaged savings vehicle specifically designed for healthcare expenses. These accounts are often paired with high-deductible health plans, offering a unique opportunity to save for current and future medical costs. It is possible to invest HSA funds, allowing them to potentially grow over time, similar to certain retirement accounts. This positions the HSA as both a savings tool for immediate healthcare needs and a long-term investment vehicle.

Eligibility and Contribution to an HSA

To establish and contribute to a Health Savings Account, an individual must be enrolled in a High-Deductible Health Plan (HDHP). For 2025, an HDHP must have a minimum annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage. The plan’s out-of-pocket maximum cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

Additional criteria must be met for HSA contributions. An individual cannot be covered by any other non-HDHP health insurance, nor can they be enrolled in Medicare. Furthermore, one cannot be claimed as a dependent on another person’s tax return. Each eligible spouse must open a separate account; joint HSAs are not permitted.

The Internal Revenue Service (IRS) sets annual limits on contributions to HSAs, which vary based on coverage type. For 2025, individuals with self-only HDHP coverage can contribute up to $4,300. Those with family HDHP coverage can contribute up to $8,550.

An additional “catch-up” contribution is available for eligible individuals aged 55 and older. This allows for an extra $1,000 contribution annually. For instance, an individual aged 55 or older with self-only coverage could contribute up to $5,300 in 2025, while those with family coverage could contribute up to $9,550. Contributions can be made through payroll deductions, if offered by an employer, which are pre-tax, or directly to the HSA custodian.

Total contributions, including any employer contributions, cannot exceed these annual limits. Exceeding the contribution limits can result in a 6% excise tax on the excess amount for each year it remains in the account. If an individual is not covered by an HDHP for the entire year, their contribution limit is prorated based on the number of months they were eligible.

Investing HSA Funds

HSA funds typically reside in a cash account with the HSA custodian. To invest, account holders transfer cash funds into a separate investment sub-account or a linked brokerage account. Many HSA providers require a minimum cash balance, often around $2,000, before funds can be invested.

HSA investment platforms offer various investment vehicles. These options often include mutual funds, Exchange Traded Funds (ETFs), and sometimes direct investment in individual stocks and bonds.

Managing an investment portfolio within an HSA involves several steps. Account holders log into their HSA online portal, navigate to the investment section, and select their desired investment options. Many platforms offer tools to help choose investments, such as risk tolerance questionnaires. Automatic rebalancing features may also be available to maintain a desired asset allocation.

Setting up recurring transfers from the cash account to the investment account automates the investment process, ensuring consistent growth. Dividends and interest earned from investments within the HSA are usually reinvested, contributing to the tax-free growth of the account. While HSAs offer investment opportunities, associated fees like expense ratios or trading fees may still apply.

Tax Advantages of HSA Investments

HSAs offer a “triple tax advantage,” distinguishing them from many other savings and investment vehicles. This unique combination of tax benefits makes HSAs a powerful tool for long-term financial planning, particularly for healthcare expenses.

First, contributions are tax-deductible, reducing an individual’s taxable income for the year. If contributions are made through payroll deductions, they are pre-tax, which can further reduce gross income and potentially payroll taxes like Social Security and Medicare.

Second, invested funds grow tax-free. Any interest, dividends, or capital gains earned on the investments are not subject to taxes while they remain within the account. This allows funds to compound over time without the drag of annual taxation, significantly enhancing their growth potential. This tax-free growth contrasts with taxable brokerage accounts, where investment earnings are typically subject to annual taxation.

Third, withdrawals for qualified medical expenses are tax-free. When HSA funds are used to pay for eligible healthcare costs, these withdrawals are entirely tax-free. This means that the money goes in tax-deductible, grows tax-free, and comes out tax-free when used for its intended purpose. This comprehensive tax treatment makes the HSA an efficient account for managing healthcare costs and saving for future medical needs.

Using Your HSA for Qualified Medical Expenses

HSAs are designed to cover qualified medical expenses, and understanding what constitutes such an expense is essential for maintaining the account’s tax advantages. The Internal Revenue Service (IRS) defines qualified medical expenses as amounts paid for the diagnosis, cure, treatment, or prevention of disease, or for treatments affecting any part or function of the body.

Specific examples of qualified medical expenses include:
Ambulance services
Acupuncture
Artificial limbs
Crutches
Flu shots
Hearing aids
Laboratory fees
Physical therapy
Certain over-the-counter medications and menstrual care products

Expenses must primarily be for preventing or alleviating a physical or mental defect or illness. Cosmetic surgery is generally not a qualified medical expense unless medically necessary.

HSA funds offer flexibility. Account holders can use an HSA debit card to pay for current medical expenses directly. Alternatively, individuals can pay for medical expenses out-of-pocket and then reimburse themselves from their HSA later. This “pay yourself back” strategy allows invested funds to continue growing tax-free, with no time limit on when the reimbursement must occur, as long as the expense was incurred after the HSA was established. Keep detailed records and receipts for all medical expenses in case of an IRS audit.

Withdrawals from an HSA for purposes other than qualified medical expenses are subject to taxation. If a non-qualified withdrawal occurs before the account holder reaches age 65, the amount withdrawn is included in gross income and typically incurs an additional 20% penalty tax. However, once an individual reaches age 65, withdrawals for non-qualified expenses are only subject to ordinary income tax, with the 20% penalty no longer applicable. This rule provides significant flexibility in retirement, allowing HSAs to function much like a traditional IRA or 401(k) after age 65, but with the added benefit of tax-free withdrawals for medical costs at any age.