A Tax-Advantaged Investment Strategy to Maximize Your Health Savings Account

A Health Savings Account (HSA) is not just a tax-efficient way to cover medical expenses, it can also serve as a valuable investment tool for retirement. With tax-deductible contributions, tax-free earnings, and tax-free withdrawals for qualified medical expenses, HSAs offer a powerful way to build long-term savings. The following strategies can help you leverage your HSA for investment growth, keeping your balance entirely in cash.

Contributing to Your HSA

To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP). In 2025, contribution limits are $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution allowed for those 55 and older. If you haven’t reached your contribution limit by year-end, you have until Tax Day to make additional deposits.

Ways to Contribute:

• Payroll Deductions: Contributions through your employer are pre-tax, reducing your taxable income.
• Employer Contributions: Some employers offer HSA contributions as part of their benefits package, which do not count as taxable income.
• After-Tax Contributions: If you contribute with after-tax dollars, you may be able to deduct the amount on your tax return.

Investing HSA Funds for Long-Term Growth

Many HSA holders miss out on potential tax-free growth by keeping their savings in cash. While it’s advisable to retain two to three years’ worth of medical expenses in cash or low-volatility investments, excess funds can be invested for long-term benefits.

Investment Options:

• Mutual Funds & ETFs: Diversify your portfolio for growth.
• Stocks & Bonds: Build a mix based on risk tolerance and time horizon.
• Health Savings Brokerage Accounts (HSBAs): Some HSA providers offer linked investment accounts with broader investment choices.

Rollover & Transfer Strategies

If you switch jobs or health plans, consolidating multiple HSAs can simplify account management and reduce fees. Transfers between HSAs are tax-free and unlimited, whereas rollovers (where funds are withdrawn and redeposited) must be completed within 60 days to avoid penalties.

Using HSA Funds in Retirement

After age 65, HSA funds can be withdrawn for non-medical expenses without penalty (though regular income tax applies). Unlike traditional retirement accounts, HSAs are not subject to required minimum distributions (RMDs), making them a flexible retirement savings tool.

Seek Guidance Before Making Big Decisions

An HSA is an opportunity for tax-free investment growth. By contributing the maximum amount annually and strategically investing excess funds, you can build a significant nest egg for both health care costs and retirement income. But before making any big decisions, schedule an appointment with us to discuss your ideas. We can help you explore the options available to you and craft a long-term financial plan to help you meet your goals.