Can You Invest Your HSA Money?
Unlock the potential of your Health Savings Account by learning how to invest funds for long-term financial growth and tax-advantaged savings.
Health Savings Accounts (HSAs) are personal savings accounts designed to help individuals save for healthcare costs. They are for those covered by a high-deductible health plan (HDHP), offering a tax-advantaged way to set aside funds for current and future medical expenses.
HSA Investment Eligibility
To be eligible for an HSA, an individual must be covered by a High Deductible Health Plan (HDHP) and not have other non-HDHP health coverage. An HDHP is defined by annual deductible and out-of-pocket maximum limits set by the Internal Revenue Service (IRS) each year. For 2025, an HDHP must have a minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage, with maximum out-of-pocket expenses not exceeding $8,550 for self-only coverage or $17,100 for family coverage.
Individuals are ineligible if enrolled in Medicare, claimed as a dependent, or have other health coverage that provides benefits before the HDHP deductible is met. Examples of disqualifying coverage include a spouse’s non-HDHP plan or a general-purpose health flexible spending arrangement (FSA). Many custodians allow account holders to invest a portion of their funds.
Not all HSA custodians offer investment features; individuals interested in investing must choose a provider that supports this option. Some custodians require a minimum cash balance before funds can be transferred to an investment sub-account. This cash threshold varies significantly among providers, ranging from a few hundred to several thousand dollars. Selecting a custodian that aligns with investment goals and offers suitable investment avenues is a preliminary step.
Establishing an HSA Investment Account
Establishing an investment component within an HSA involves selecting a custodian with integrated investment capabilities. Many financial institutions, including brokerage firms and banks, offer HSAs with investment options. The process begins with opening the HSA, if not already established, and then activating or linking an investment sub-account. This sub-account is where investment activities take place, separate from the cash portion.
Once the investment sub-account is active, funds can be transferred from the cash balance into this investment portion. Custodians have specific requirements for transfers, such as minimum amounts or holding periods for initial contributions. Account holders initiate transfers through the custodian’s online portal or customer service. Custodians commonly require a minimum cash balance in the primary HSA to cover immediate medical expenses or fees.
The time for funds to move from the cash to investment account and become available for trading varies. It usually ranges from one to three business days, similar to other investment transfers. Some HSA providers offer automated investment services, sweeping funds above a threshold into pre-selected portfolios. Understanding transfer rules and associated fees is important for effective HSA investment management.
Investment Options within HSA Accounts
Health Savings Accounts with investment capabilities provide access to common investment vehicles. These options are similar to those in other retirement or brokerage accounts, allowing diversification. Mutual funds are a prevalent option, offering professionally managed portfolios of stocks, bonds, or other securities. They offer diversification across assets, often aligned with different investment objectives or risk tolerances.
Exchange Traded Funds (ETFs) are another popular choice within many HSA investment platforms. ETFs are similar to mutual funds but trade like stocks on exchanges throughout the day. They often track an index, commodity, or sector, providing cost-effective exposure to broad market segments. Both mutual funds and ETFs offer a convenient way to build a diversified HSA portfolio without selecting individual securities.
Some HSA custodians also allow purchase of individual stocks and bonds. Investing in individual stocks means buying shares of specific companies, offering direct exposure to performance. Bonds represent loans to a corporation or government, providing a fixed income stream and generally lower risk than stocks. The availability of these individual security options varies significantly among HSA providers.
Tax Treatment of HSA Funds
HSA funds offer a “triple tax benefit.” Contributions are tax-deductible, reducing taxable income for the year. This deduction applies whether contributions are made directly or through payroll. Annual contribution limits are set by the IRS, varying by coverage type (self-only or family) and age, with an additional catch-up contribution for those aged 55 and over. For 2025, the maximum contribution is $4,300 for self-only coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution.
Once invested, earnings (interest, dividends, capital gains) grow tax-free. This means investment returns are not subject to federal income tax as long as they remain within the HSA. This allows the account balance to compound more efficiently than taxable investment accounts. Tax-free growth significantly enhances long-term fund accumulation.
Withdrawals are also tax-free, provided they are used for qualified medical expenses. These expenses include doctor visits, prescription medications, dental care, vision care, and certain long-term care insurance premiums. Maintaining detailed records of qualified medical expenses is advisable to substantiate tax-free withdrawals. Distributions for non-qualified expenses are subject to ordinary income tax and may incur a 20% penalty if the account holder is under age 65.
After age 65, funds can be withdrawn for any purpose without the 20% penalty, though non-qualified withdrawals are still subject to ordinary income tax. This flexibility allows the HSA to function similarly to a traditional IRA if funds are not needed for medical expenses. Withdrawals for qualified medical expenses remain tax-free regardless of age. This distinct tax structure makes HSAs a versatile financial tool for healthcare savings and retirement planning.
HSA Investment Eligibility
To be eligible for an HSA, an individual must be covered by a High Deductible Health Plan (HDHP) and not have other non-HDHP health coverage. An HDHP is defined by annual deductible and out-of-pocket maximum limits set by the Internal Revenue Service (IRS) each year. For 2025, an HDHP must have a minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage, with maximum out-of-pocket expenses not exceeding $8,550 for self-only coverage or $17,100 for family coverage.
Individuals are ineligible if enrolled in Medicare, claimed as a dependent, or have other health coverage that provides benefits before the HDHP deductible is met. Examples of disqualifying coverage include a spouse’s non-HDHP plan or a general-purpose health flexible spending arrangement (FSA). Many custodians allow account holders to invest a portion of their funds.
Not all HSA custodians offer investment features; individuals interested in investing must choose a provider that supports this option. Some custodians require a minimum cash balance before funds can be transferred to an investment sub-account. This cash threshold varies significantly among providers, ranging from typically $1,000 to $2,000, but some have no minimum. Selecting a custodian that aligns with investment goals and offers suitable investment avenues is a preliminary step.
Establishing an HSA Investment Account
Establishing an investment component within an HSA involves selecting an HSA custodian that provides integrated investment capabilities. Many financial institutions, including brokerage firms and banks, offer HSAs with investment options. The process begins with opening the HSA, if not already established, and then activating or linking an investment sub-account. This sub-account is where investment activities take place, separate from the cash portion.
Once the investment sub-account is active, funds can be transferred from the cash balance into this investment portion. Custodians have specific requirements for transfers, such as minimum amounts or holding periods for initial contributions. For instance, some may require a minimum transfer of $100. Account holders initiate transfers through the custodian’s online portal or customer service. It is common for custodians to require a minimum cash balance to remain in the primary HSA to cover immediate medical expenses or account fees.
The time for funds to move from the cash to investment account and become available for trading varies. It usually ranges from a few business days. Some HSA providers offer automated investment services, sweeping funds above a threshold into pre-selected portfolios. Understanding transfer rules and associated fees is important for effective HSA investment management.
Investment Options within HSA Accounts
Health Savings Accounts with investment capabilities provide access to common investment vehicles. These options are similar to those in other retirement or brokerage accounts, allowing diversification. Mutual funds are a prevalent option, offering professionally managed portfolios of stocks, bonds, or other securities. They offer diversification across assets, often aligned with different investment objectives or risk tolerances.
Exchange Traded Funds (ETFs) are another popular choice within many HSA investment platforms. ETFs are similar to mutual funds but trade like stocks on exchanges throughout the day. They often track an index, commodity, or sector, providing cost-effective exposure to broad market segments. Both mutual funds and ETFs offer a convenient way to build a diversified HSA portfolio without selecting individual securities.
Some HSA custodians also allow purchase of individual stocks and bonds. Investing in individual stocks means buying shares of specific companies, offering direct exposure to performance. Bonds represent loans to a corporation or government, providing a fixed income stream and generally lower risk than stocks. The availability of these individual security options varies significantly among HSA providers.