Investment Strategies

Why, when, where, and how should I invest my HSA money?

All current or new Health Savings Account owners need to realize that they have one of the most powerful tax free savings vehicles EVER created at their fingertips, and they need to start learning how to leverage it and soon!  It’s MORE powerful than an IRA, a 401k, or even a Roth IRA!!   How?  It’s the only account that gives you the “triple tax advantage” or as I say “tax-trifecta”. When you “invest” you Health Savings Account, you allow the compounding of money and the triple tax free feature of the HSA to be a “win-win” situation.



1. Contributions are tax deductible: either pre-tax salary reduction or on your 1040 tax form. The HSA has no income limits, it’s in addition to other retirement plan contributions, and anyone can contribute to your account.

2. Growth is tax deferred: no income tax is due on any of your interest or capital gain growth.

3. Distributions are tax free: for HSA eligible medical, dental, vision and some insurance premium expenses.


Why are they more powerful? Because an IRA, 401k, and Roth IRA only have 2 of the 3 above tax characteristics. IRA & 401k distributions are taxable upon receipt, and Roth IRA contributions are not tax deductible when you contribute. With an HSA, you save money on taxes when you make contributions, you get to grow this newly found money from the IRS, and then get to spend it tax free on medical and other expenses any human being will have in the future. The more growth in the account, the more powerful effect it will have on your financial security. When economists state that it costs over $200,000 to take care of someone’s health from birth to death, we got a lot of work ahead of us! Read more on our HSA Retirement & Medicare Strategies page or our HSA tax planning strategies page.

If you agree with the tax argument above, let’s also agree on the following: “every human being will have medical, dental, vision, or long term care expenses at some point in their lifetime”. Let’s also agree that any financial plan would include planning for these type of expenses ahead of time. Many now in retirement find themselves using their taxable retirement accounts to pay for prescriptions, dental implants, hearing aids and long term care (vs being tax free with an HSA). So, correct financial planning would establish 2 buckets of money:


• Bucket #1: is for normal retirement expenses like a mortgage(s), living expenses, vacations, and your toys.

• Bucket #2: is for medical, dental, vision, braces, lasik eye surgery, maternity, long term care, Medicare, etc.


When do I consider investing my HSA?

First things first! If we all agree that contributing to your HSA is a smart thing to do; let’s do it prudently. The reason you have an HSA, is because you have a high deductible health insurance plan (HDHP). Given the situation, you should at least contribute the amount of your deductible (Ex: $1500 – $12,000), to a “safe” money market or CD account and your bank of choice. (See our HSA Banks & Credit Union page for a list of our favorite HSA banks) So, if a medical expense comes up, or you have an upcoming planned larger expense like braces; you’ll have the money set aside and prepared for the bills. Most HSA owners are woefully underfunded, don’t put yourself in that predicament.


What if my Health Savings Account has a larger balance?

Now that you have your deductible money set aside, your health is strong, and you’re looking forward to your older more expensive years; it’s time to start investing money above your deductible amount or “safe money”. Investing means any stock, bond, mutual fund or ETF, including real estate. In the past, finding custodians that had an investment platform. But 8 years later, there are plenty to choose from. See our favorites on the HSA Investment Custodians page.

Two separate HSA accounts?

Most HSA investment custodians require that you open 2 separate HSA accounts. You can have as many HSA’s as you wish, but you can only contribute a maximum amount in total. One is for your money market checking account, the other for your “investments”. The custodian either provides their own trading platform or they have a broker/dealer relationship. Having 2 HSA accounts will cause additional monthly and trading fees, but these expenses should be offset by your compounding investment gains….or that’s at least the premise. So don’t be scared to take this plunge if you HSA balance is getting higher, and you have a longer time frame for the investments to work in your favor.


How should I allocate my investments?

Once you’ve opened your separate HSA trading account, your next decision is how to allocate your money amongst stocks, bonds, mutual funds and ETF’s. You can have a conservative, moderate or aggressive portfolio. This is where my advice ends, and where a Financial Advisers’ advice begins. They will determine your risk tolerance, your investment horizon, and how it complements your other investments. See our Financial Adviser page for links to professional organizations.

Look for more strategies on our HSA blog , the HSA bookstore, HSA quick tips, HSA calculators, and HSA real life stories pages.