How to Invest Your HSA Funds and Why

Access to Health Savings Accounts (HSAs) has been on the rise over the last decade. As of 2024, 39% of private industry workers had access to these plans—up from 24% in 2015, according to the U.S. Bureau of Labor Statistics. Access increased to at least 50% for employees at companies with 100 or more workers.

If you’re one of those employees, the potential benefits of your HSA far exceed a basic savings account you can use to cover medical expenses.

With the right strategy, your HSA can double as a long-term investment vehicle, growing tax-free and following you into retirement. Here are a few tips on how to invest HSA funds to meet your medical and post-retirement needs.

HSA Basics

An HSA, or Health Savings Account, is a tax-advantaged savings account designed to help individuals save for medical expenses. It allows you to contribute pre-tax income, which reduces your taxable income. The funds can then be used to pay for qualified medical expenses tax-free.

HSAs are tax-advantaged savings accounts you can use when enrolled in a high-deductible health plan (HDHP). It allows you to contribute pre-tax income, which reduces your taxable income. The funds can then be used to pay for qualified medical expenses tax-free.

Key features include:

• Pre-tax contributions that reduce your taxable income
• Tax-free growth when funds are invested
• Tax-free withdrawals for qualified medical expenses
• Year-to-year rollover, so unused funds stay in your account

A cash savings account isn’t the only way to leverage HSA funds, however. You can invest funds to grow your balance over time and maximize the tax advantages built into an HSA.

What Investments Can You Hold in an HSA

You can hold several types of traditional market-based investments in an HSA, including:

• Stocks
• Bonds
• Mutual funds
• ETFs

These are the standard options offered by most HSA custodians and can help your balance grow tax-free over time.

However, traditional HSAs limit your choices to publicly traded securities. But what if you want to expand beyond that or leverage funds to exploit promising investment opportunities?

The answer is a self-directed HSA.

Self-directed HSAs

A self-directed HSA gives you expanded investment control, allowing you to move beyond standard market options into alternative assets your custodian supports. It functions like a traditional HSA but offers greater flexibility for long-term growth.

Alternative investments permitted in a self-directed HSA include:

• Real estate
• Promissory notes
• Precious metals
• Cryptocurrency
• Private Equity

Tapping these assets gives you more freedom to shape your investment strategy and use your HSA as a long-term growth tool. This structure gives you flexibility beyond what traditional HSAs typically offer.

Should I Use My HSA as an Investment

Using your HSA as an investment vehicle can be beneficial if you want the opportunity to grow your savings over time. Here are some reasons you may want to consider investing your HSA balance:

• Contributions are made with pre-tax dollars, which can reduce your taxable income.
• Investment earnings grow tax-free, allowing your balance to compound while it stays in the account.
• Withdrawals for qualified medical expenses are not taxed, no matter when you take them.
• Contributions are tax-deductible up to the IRS annual limit.
• Unused funds roll over each year, so your HSA balance can continue to grow long term.
• You can invest in traditional assets, such as stocks, bonds, and mutual funds, or alternative assets, if you have a self-directed HSA.

Keep in mind that your HSA is designed to support both current and future medical needs, and investing introduces some risk. If you consistently contribute and do not expect significant upcoming expenses, investing your HSA funds may help you build long-term financial security. If you’re unsure whether this strategy fits your situation, consider speaking with a financial advisor.

Does an HSA Grow with Interest?

An HSA can grow interest, but how much it grows depends on how your funds are held. Cash balances kept in a standard HSA savings or money market account may earn a modest interest rate, often around 1% or less, depending on the custodian.

If you invest your HSA funds in market-based assets, such as stocks, ETFs, or mutual funds, the growth of your HSA depends on those investments’ performance. Returns can fluctuate, and assets may gain or lose value over time.

The same principle applies to a self-directed HSA. If your funds are allocated to alternative assets, growth is tied to the performance of those investments.

How Much Money Should I Keep in My HSA

The amount of money you should keep in your HSA account depends on three different factors:

• Your estimated annual medical expenses, including family members, if they rely on your HSA funds
• Your family medical history can help you account for your long-term medical expenses
• Your estimated lifespan

If you plan on using your HSA as an investment tool or to cover your medical expenses down the road, it is wise to contribute the maximum amount allowed by the IRS.

That’s especially true since the dollars in your HSA carry over yearly and have a triple tax advantage: pre-tax contributions, tax-free earnings, and tax-free qualifying withdrawals.

HSA Contribution Limits

IRS-determined HSA contributions can change from year to year, so it’s essential to review your contributions and IRS limits annually.

For the 2026 tax year, the contribution limit for an HSA is $4,400 if you have self-only coverage under a qualifying high-deductible health plan (HDHP), and $8,750 for family coverage.

Individuals age 55 or older who are not enrolled in Medicare can make an additional $1,000 catch-up contribution.

Can You Withdraw Money from an HSA for Non-Medical Expenses?

Yes, you can withdraw money for non-medical expenses from your HSA account at any time, but taxes and penalties may apply.

If you are under 65 and want to withdraw HSA funds for non-medical expenses, expect to pay income tax on the amount withdrawn. The funds will also be subject to a 20% early withdrawal penalty.

Once you reach 65 years of age, HSA funds withdrawn for non-medical reasons are only subject to income tax.

Keep in mind that regardless of your age, withdrawals made for medical expenses are always tax and penalty-free.

Is an HSA Better than a Roth IRA or 401(k)?

Whether an HSA is better than a Roth IRA or 401(k) depends on what you want to accomplish. If your main goal is to save for medical expenses, an HSA can offer stronger tax advantages because it provides: pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

This complete set of tax benefits is unique to HSAs.

HSAs can also support long-term retirement planning. After age 65, you can withdraw funds for non-medical expenses without penalty (ordinary income tax applies), giving the account flexibility beyond healthcare costs.

This combination, often called the “triple tax advantage,” is unique to HSAs.

IRAs and 401(k)s offer benefits that HSAs do not, including:

• Higher contribution limits, especially in a 401(k)
• Employer matching in many 401(k) plans
• Greater long-term income planning options, especially in Roth accounts

Because each account type serves a different purpose, many savers use an HSA alongside an IRA or 401(k). Doing so allows you to cover medical costs tax-efficiently while still building long-term retirement income.

	HSA	IRA (Traditional or Roth)	Roth 401(k) (Traditional or Roth)
Contributions	Pre-tax	Pre-tax (Traditional) or After-tax (Roth)	Pre-tax (Traditional) or After-tax (Roth)
Growth	Tax free	Tax-deferred (Traditional) or Taxable contribution. Tax-free withdrawal in retirement (Roth)	Tax-deferred (Traditional) or Taxable contribution. Tax-free withdrawal in retirement (Roth)
Withdrawals	Tax-free for qualified medical expenses; taxable for non-medical after age 65	Taxed as income in retirement (Traditional) or Tax-free in retirement (Roth)	Taxed as income in retirement (Traditional) or Tax-free in retirement (Roth)
Annual contribution limit (2026)	$4,400 for self-only coverage; $8,750 for family coverage	$7,500 + $1,100 catch-up for those 50 or older (Same Limits. Additional income-based limits may apply for Roth)	$24,500 + $8,000 catch-up for those 50 or older (Employee-Deferred)
Employer match	No	No	Often, yes
Rules/Penalties	Penalty for non-medical withdrawals before 65	Penalty before 59½ unless exception applies Roth: Tax and penalty-free withdrawals from contributions	Penalty before 59½ unless exception applies
Required minimum distributions (RMDs)?	None	Only for Traditional accounts	Only for Traditional accounts

FAQ

Can I Invest My HSA into Crypto?

Yes, because HSA investment can be self-directed, you can choose to invest your funds in cryptocurrency. To do so, you must work with a trustee or custodian, like Horizon Trust, who is qualified to carry out this type of investment. You will also need to open a crypto trading account.

What are the benefits of investing HSA funds?

Investing HSA funds can help your balance grow over time while preserving the tax advantages built into the account. Investment earnings grow tax-free, and withdrawals for qualified medical expenses remain tax-free, which can make your HSA a powerful tool for future healthcare costs.

By investing rather than keeping all funds in cash, you can build a larger cushion for both near-term and long-term medical needs.

What types of investments are available for HSA funds?

The types of investments available for HSA funds depend on your custodian. Most HSAs allow you to invest in traditional market-based options such as stocks, bonds, mutual funds, and ETFs. If your provider offers a self-directed HSA, you may also be able to invest in alternative assets, such as real estate, promissory notes, precious metals, cryptocurrency, or private equity.