Investing your health savings account funds

A health savings account (HSA) is a tax-advantaged savings account that allows you to set aside money for qualified medical expenses. These accounts stand out for their triple tax advantage: The contributions are tax-deductible, growth is tax-free and withdrawals for qualified expenses are tax-free. Additionally, your HSA balance rolls over year to year – you never lose the money you contribute.

HSAs can become even more valuable when you invest the funds to grow your balance over time. Let’s look at the different investment options available to you and how to get started.

Understanding health savings accounts

An HSA is a tax-advantaged savings account you can set up to pay for qualified medical expenses, such as doctor’s visits, hospital bills and prescription medications. When you withdraw funds from an HSA, the deductions are tax-free as long as you use the money for qualified medical expenses.

To qualify for opening and contributing to an HSA, you must be enrolled in a high-deductible health plan (HDHP), which comes with low monthly premiums and high annual deductibles. Further, you can’t be covered under any other health insurance plan (including Medicare), and you can’t be eligible to be claimed as a dependent on someone else’s tax return.

You can put money into an HSA the same way you would for any other savings account, and you can save, spend or invest the funds. If your HSA is set up through your employer, you may have the option to make contributions through payroll deductions. If you pay for a qualified medical expense out of pocket, you can reimburse yourself using HSA funds. Your HSA balance also rolls over year to year; there is no deadline by which to spend the money.

The IRS sets annual contribution limits, and these adjust each year to account for inflation. For 2026, the annual HSA contribution limits are:

Individuals 55 and older also have the option to make a $1,000 catch-up contribution. And if you and your spouse are both 55 and older with your own individual HSAs, you can both contribute up to $1,000 per year in catch-up contributions, for $2,000 in total.

Why you may want to consider investing your HSA funds

When you open an HSA, you have the option to keep the money in cash, but many plans also allow you to invest the money. You may have to maintain a minimum cash balance before investing the money, so check with your HSA provider. Once you’ve hit that threshold, you may be able to invest the remaining balance according to your risk tolerance and time horizon.

Health care costs are rising, and it’s predicted that an average retired 65-year-old couple could need at least $366,000 saved for out-of-pocket medical costs during their retirement years. Investing your HSA funds, then, could help your account balance grow over time so you have more money to cover those costs in retirement. But remember, returns are not guaranteed when investing.

Available investments for HSAs

The investment choices available to you will vary depending on your provider, but most give you the option to invest in mutual funds, exchange-traded funds (ETFs), stocks and bonds. You can view your investment options by logging into your provider’s online portal. Some HSAs even provide tools that help you select the investment allocation right for you or help you rebalance your portfolio.

Anytime you invest your money, it’s important to be aware of any fees and expenses associated with the account or the underlying investments since they can eat into your earnings. Watch out for transaction fees and account maintenance fees. You should be able to find this information in your account portal, or you can try contacting your provider directly via phone or email.

How to start investing your HSA balance

The first step to investing your HSA money is to contact the provider to verify the rules. In addition to confirming any minimum balance requirements, you’ll want to think about how much cash to keep in the account to cover out-of-pocket medical expenses.

From there, you can log into your account to invest the money. You may also be able to set up automated investing, so you don’t have to remember to invest the HSA money each month. Choose your investment strategy based on your time horizon and risk tolerance.

When you’re choosing your investments, you may want to look for funds with low expense ratios. You may also want to diversify your investments across different asset types to help manage risk. It’s important to rebalance your portfolio regularly to ensure it stays diversified and aligned with your long-term financial goals.

Risks and considerations for investing HSA funds

Investing your HSA funds can be an effective way to grow your money tax-free, but there are some risks to keep in mind. Any money you invest in securities is subject to market risk, so your investments can lose money if the market drops. This may make HSA investing a better option for those with longer time horizons than for people who need the funds for immediate spending.

Further, since the money in your HSA is designed to cover qualified medical expenses, nonqualified withdrawals may be subject to hefty fines and penalties. If you use any HSA money for nonqualified expenses before age 65, you’ll incur a 20% penalty on top of regular income tax. After age 65, you’ll pay ordinary income tax on the withdrawals from your HSA when the money is used for nonmedical expenses. A tax professional can explain these rules.

Finally, there are differences between HSA providers and their investment offerings. If you have the ability to choose a provider, compare your options and look for one with low fees, a wide range of investment options and a website that’s intuitive and easy to navigate. If your HSA is provided through your employer, you may not have a choice as to which HSA provider manages your account.

The bottom line

Investing your HSA funds can be one additional way to save and invest for retirement, thanks to multiple tax benefits. Before getting started, though, it’s important to align your investment strategy with your health care needs and financial goals and understand that investing always comes with the risk of losing money. Take some time to review your HSA provider’s options and consider talking with a financial professional if needed.

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