Can You Invest With a Health Savings Account (HSA)?

Health Savings Accounts (HSAs) function as both a savings vehicle for current medical expenses and an investment tool for future healthcare costs. Funds held within an HSA can be invested, allowing contributions to grow over time. This offers a strategic way to manage healthcare expenditures while building wealth.

Establishing an HSA

Establishing a Health Savings Account requires meeting specific eligibility criteria related to your health insurance coverage. To qualify, you must be enrolled in a High-Deductible Health Plan (HDHP) and typically have no other health coverage. For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. The plan’s annual out-of-pocket maximums cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

You cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return. Once eligible, an HSA can be opened through your employer, a bank, or a dedicated HSA provider.

Understanding HSA Investment Options

Not all HSA providers automatically offer investment capabilities; some function purely as savings accounts. To invest, select an HSA administrator that supports investing. Many providers facilitate moving funds from the cash portion of the HSA into an investment section, often by setting a cash threshold for transfer.

Common investment vehicles available within HSAs often include a selection of mutual funds, Exchange Traded Funds (ETFs), and sometimes individual stocks or bonds. The specific range of choices can vary significantly between providers, with some offering a wide array of options similar to a brokerage account, while others may provide a curated list of funds. When selecting an HSA investment platform, consider the available investment choices, as well as any associated fees. These fees can include administrative charges, which might be asset-based (e.g., ranging from 0.10% to 0.40% annually) or fixed (e.g., $24 to $48 per year, sometimes waived with higher balances). Underlying fund expense ratios, which average around 0.09% annually, also contribute to the overall cost of investing.

Maximizing Tax Benefits Through HSA Investing

Investing with an HSA offers unique financial advantages, often referred to as the “triple tax advantage.” This benefit begins with contributions, which are tax-deductible. If contributions are made through payroll deductions, they are also pre-tax, meaning they reduce your taxable income and are not subject to Social Security or Medicare taxes.

The second component of the triple tax advantage is tax-free growth. Any investment earnings, such as interest, dividends, or capital gains, accrue within the HSA without being subject to federal income tax. This allows your investments to compound more efficiently over time compared to taxable accounts.

The third and perhaps most compelling advantage is that qualified withdrawals for eligible medical expenses are entirely tax-free. This means that funds used for healthcare costs are never taxed at any point.

These combined tax benefits position HSAs as a powerful tool for long-term financial planning, particularly for covering healthcare costs in retirement. The ability for funds to grow tax-free and be withdrawn tax-free for medical expenses makes the HSA a highly efficient savings and investment vehicle. Many financial professionals view the HSA as a significant component of a comprehensive retirement strategy due to its unparalleled tax efficiency.

Navigating HSA Contributions and Withdrawals

Understanding the rules for contributing to and withdrawing from an HSA is important. For 2025, the annual contribution limits are $4,300 for individuals with self-only HDHP coverage and $8,550 for those with family HDHP coverage. Individuals aged 55 and older can make an additional “catch-up” contribution of $1,000 per year. These limits apply to the total contributions from all sources, including both employee and employer contributions.

Withdrawals from an HSA are tax-free only when used for qualified medical expenses. The IRS defines these as costs for diagnosis, treatment, or prevention of disease. Examples include deductibles, co-payments, prescription medications, vision care, dental treatment, and even over-the-counter medications without a prescription. For a comprehensive list, taxpayers can refer to IRS Publication 502.

If withdrawals are made for purposes other than qualified medical expenses before age 65, the amount is subject to ordinary income tax and an additional 20% penalty. After reaching age 65, the 20% penalty for non-qualified withdrawals no longer applies. At this point, HSA funds can be withdrawn for any purpose, though amounts not used for qualified medical expenses will be subject to ordinary income tax, similar to withdrawals from a traditional Individual Retirement Account (IRA).