Can You Invest Money in a Health Savings Account?

Health Savings Accounts (HSAs) offer a unique opportunity to manage healthcare costs while simultaneously building long-term savings. Individuals can indeed invest the money held within an HSA, allowing funds to potentially grow over time, similar to other retirement or investment accounts. This dual purpose makes HSAs a valuable financial tool for those seeking to prepare for both immediate and future healthcare needs.

Eligibility for an HSA

To establish and contribute to a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP). For 2025, an HDHP is defined as a health plan with a minimum annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage. Furthermore, the plan’s out-of-pocket maximums, which include deductibles, co-payments, and co-insurance but exclude premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage for the same year.

Beyond the HDHP requirement, there are additional criteria for HSA eligibility. An individual cannot be enrolled in Medicare, nor can they be claimed as a dependent on someone else’s tax return. Having other disqualifying health coverage that is not an HDHP can also preclude eligibility.

The Mechanics of HSA Investing

The process of investing funds within a Health Savings Account typically begins with contributions first being held in a cash balance within the account. Once a sufficient cash balance accumulates, the account holder can then transfer these funds from the cash portion into an investment account offered by their HSA custodian. Many HSA providers establish a minimum cash threshold, such as $1,000 or $2,000, that must be maintained before funds can be moved into investment options.

HSA providers generally offer a range of investment choices. These options frequently include various mutual funds, exchange-traded funds (ETFs), and sometimes even individual stocks or bonds. The specific investment products available, along with their associated fees and minimum investment requirements, can vary significantly among different HSA custodians. Account holders are responsible for selecting and managing these investments, although some providers offer managed portfolio options.

Tax Advantages of HSA Investments

Health Savings Accounts offer a “triple tax advantage” for long-term savings and investment. The first advantage is that contributions made to an HSA are tax-deductible, or if made through payroll deductions, they are pre-tax. This means that the money contributed reduces an individual’s taxable income for the year.

The second benefit is that any investment earnings within the HSA, such as interest, dividends, and capital gains, grow tax-free. The third advantage is that withdrawals made for qualified medical expenses are entirely tax-free. State tax treatment of HSAs can vary.

Using Your Invested HSA Funds

Funds held within an invested Health Savings Account can be used to cover a wide array of qualified medical expenses. These expenses, as defined by the Internal Revenue Service (IRS), include costs for diagnosis, cure, mitigation, treatment, or prevention of disease. Common examples encompass doctor’s visits, prescription medications, dental care, and vision services.

If funds are withdrawn for non-qualified expenses before the account holder reaches age 65, the withdrawn amount becomes taxable as ordinary income and is also subject to an additional 20% penalty. However, once an individual reaches age 65, withdrawals for non-qualified expenses are still taxed as ordinary income but are no longer subject to the 20% penalty. At this point, the HSA effectively functions much like a traditional IRA or 401(k), providing tax-deferred growth with taxable withdrawals in retirement.

Selecting an HSA Provider for Investment

Choosing the right Health Savings Account provider is an important decision. A primary consideration is the range of investment options available, such as the selection of mutual funds, ETFs, or individual securities. Some providers offer a broad array of choices, while others may have a more limited or curated list.

Fees are another factor, as they can impact investment returns over time. Prospective account holders should investigate account maintenance fees, investment-specific fees like expense ratios for mutual funds, and any trading commissions. Additionally, understanding minimum balance requirements for investing and any initial investment minimums is important. Finally, assessing the provider’s user interface, customer support, and overall integration with other financial services.