How to invest with your HSA

More and more people are using health savings accounts, or HSAs, to help save for future medical expenses or even boost their retirement funds. Nearly a third of covered workers were enrolled in health insurance plans with savings options in 2021, up from 17% in 2011, according to a report by the Kaiser Family Foundation. These savings accounts offer many benefits, including the ability to invest and grow your funds tax-free.

Here are tips on how to invest your HSA and a few other things you should know about these increasingly popular savings vehicles.

What is an HSA and how do the tax benefits work?

An HSA is a health savings account offered as part of a high-deductible health insurance plan that helps pay for out-of-pocket medical expenses. In 2022, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family.

HSAs come with a triple tax advantage that makes them attractive savings options. Contributions to HSAs are tax deductible, with individuals able to contribute $3,650 in 2022 and families able to contribute $7,300. Money can be withdrawn tax-free at any time to pay eligible medical expenses such as deductibles, co-payments and other expenses. The money rolls over from year to year, so you don’t have to worry about spending it within a certain time frame.

The third tax advantage of HSAs is the ability to invest your savings and grow them tax-free. For this reason, some people even treat their HSA like another retirement account, similar to an IRA or 401(k). Once you reach age 65, HSA funds can be withdrawn and used for any reason, but you will have to pay ordinary income tax on the withdrawal. Funds withdrawn for non-medical expenses before age 65 will also be subject to a 20% penalty.

Best Ways to Invest an HSA

Considering that investing in HSA funds is one of the best ways to leverage the account, it’s surprising how few people actually do it. In 2020, only 9% of HSAs were invested, according to a report by the Employee Benefits Research Institute. Part of the reason this number is so low could be the account minimums that must be met before investing with certain HSA providers. But once those thresholds (no more than $2,000) are reached, you’ll want to take advantage of the investment options.

Determining how you want to invest your HSA will depend on your particular situation. Understanding your risk tolerance and potential future medical needs will help you determine how aggressively to invest your savings. Here are some options.

Stocks and funds

For people who don’t expect a lot of medical costs in the coming years, stocks are probably one of the best ways to invest and grow your HSA. Keep in mind that stocks are volatile, so if you’re relying on your HSA to cover out-of-pocket medical expenses over the next year or two, it’s best to hold a portion of your account in cash or cash. money market funds to make sure the money is there when you need it.

Here are some ways to invest in stocks and stock-based funds:

  • Index funds: These funds allow investors to buy a broadly diversified group of stocks that track indices such as the S&P 500 or the Russell 2000. Index funds have the lowest fees, which means that a greater portion of your returns will go to you rather than the fund manager. Index funds are available as mutual funds and ETFs.
  • Dividend funds: If you’re looking to take a slightly more targeted approach, funds that hold dividend-paying stocks may also be suitable for HSA investing. Companies that pay dividends are generally profitable and established, which could make them safer than younger companies without a proven business model. In addition, you will not be taxed on the dividends, which can be reinvested or held in cash in your account.
  • Individual stocks: The riskiest approach to investing your HSA is to hold a small number of individual stocks. While they can provide outsized returns, the risk is magnified if you get it wrong, because you won’t have a diversified portfolio to protect you. Make sure you understand the business model, competitive position and valuation of any company you invest in.

Fixed income

If you have a low tolerance for risk or think you need the money for future medical expenses, it’s best to focus on lower risk investments. Money market mutual funds and other short-term bond funds will make the most sense for those in this scenario. It’s nice to be able to use your HSA as a supplemental retirement savings account, but that should only be the goal if you can cover medical expenses with other funds. You never want to be in a position where you cannot cover medical expenses due to poor investment decisions in an HSA.


If you are not interested in selecting investments on your own, some HSA providers offer the option of using a robo-advisor. These automated advisors select investments on your behalf after receiving your answers to questions about your risk tolerance, time horizon, and a few other topics. Most robo-advisors charge annual fees, but they’re usually much lower than what a traditional financial advisor might cost.

Fidelity’s robo-advisor, Fidelity Go, will manage your HSA and won’t charge fees for its Fidelity Flex mutual funds. No management fees are charged for accounts under $10,000 and fees cap at 0.35% once you reach $50,000 in account value. It’s a solid option for those who don’t want to manage their HSA investments themselves.

At the end of the line

Taking advantage of the investment opportunity offered by HSAs is necessary if you want to fully maximize the benefits of the account. Be sure to set aside enough money to cover any future medical expenses that you will need to pay out of pocket. For those with a long-term horizon, stocks are likely to be the best bet to increase the value of your HSA. If you’re more conservative or have short-term medical needs, it’s best to stick with short-term fixed income investments. Robo-advisors can be a great choice for those who prefer to let someone else manage their investments.

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