Health savings accounts (HSAs) have become increasingly popular in recent years, thanks to their unique blend of tax advantages and flexibility. They offer individuals a way to save and invest money specifically for medical expenses, while also providing potential growth opportunities. If you’re interested in investing in a health savings account but aren’t sure where to start, this comprehensive guide will walk you through the process and highlight key considerations along the way.

Understanding the Basics of Health Savings Accounts

Before diving into the investment aspect, it’s important to grasp the fundamentals of health savings accounts. An HSA is a tax-advantaged savings account that allows individuals with high-deductible health plans (HDHPs) to set aside funds for medical expenses. These funds can be invested in various financial instruments to potentially grow over time, providing potential long-term benefits. Contributions to HSAs are tax-deductible, and qualified withdrawals for medical expenses are tax-free.

When opening an HSA, you will need to meet the eligibility criteria, which include having an HDHP, not being enrolled in other health coverage, and not being claimed as a dependent on someone else’s tax return. Once eligible, you can contribute up to the annual maximum set by the IRS. For 2021, the contribution limits are $3,600 for individuals and $7,200 for families.

Choosing the Right HSA Provider

When it comes to investing in an HSA, selecting the right provider is crucial. Start by researching different HSA providers and comparing their fees, investment options, customer service, and user experience. Look for providers that offer a wide range of investment choices, such as mutual funds, exchange-traded funds (ETFs), and individual stocks. Consider the fees associated with each provider, including maintenance fees, investment fees, and transaction fees.

It’s also important to evaluate the customer service and user experience provided by each HSA provider. Look for providers that offer responsive and helpful customer support through multiple channels, such as phone, email, or online chat. Additionally, ensure that the provider offers a user-friendly website or mobile app, which will make it easier for you to manage your HSA and track your investments.

Assessing Your Risk Tolerance and Investment Goals

Before diving into the investment options available within an HSA, it’s important to assess your risk tolerance and investment goals. Consider how comfortable you are with potential fluctuations in the value of your investments and how much risk you’re willing to take on. Factors such as your age, financial situation, and long-term objectives will influence your risk tolerance.

Next, define your investment goals within your HSA. Are you looking to grow your funds for future medical expenses, or do you have a longer-term goal in mind, such as using the HSA as a retirement savings vehicle? Understanding your investment goals will help you determine the appropriate investment strategy to employ within your HSA.

Evaluating Investment Options

Once you’ve assessed your risk tolerance and investment goals, it’s time to evaluate the investment options available within your chosen HSA provider. As mentioned earlier, look for providers that offer a variety of investment choices, including mutual funds, ETFs, and individual stocks. Consider the historical performance, expense ratios, and diversification of each investment option.

Diversification is especially important for long-term investors. By spreading your investments across different asset classes, such as stocks, bonds, and cash, you can potentially mitigate risk and enhance overall portfolio performance. Look for investment options that align with your risk tolerance and investment goals, while also providing diversification benefits.

Monitoring and Reviewing Your Investments

Investing in an HSA is not a “set it and forget it” approach. It’s essential to regularly monitor and review your investments to ensure they align with your goals and risk tolerance. Review your investment portfolio at least annually, or when significant life events occur, such as changes in employment or healthcare needs.

During your reviews, assess the performance of your investments and make any necessary adjustments. Rebalancing your portfolio periodically can help maintain the desired asset allocation. Keep in mind that your risk tolerance and investment goals may evolve over time, so it’s important to periodically reassess your investment strategy within your HSA.

Considering Tax Implications

One of the primary advantages of HSAs is their tax treatment. Contributions to an HSA are tax-deductible, and qualified withdrawals for medical expenses are tax-free. However, it’s important to consider the potential tax implications of investing within an HSA.

If you plan to invest your HSA funds, any investment income and capital gains generated within the account are tax-free as long as the withdrawals are used for qualified medical expenses. However, if you withdraw funds for non-medical purposes before reaching the age of 65, they will be subject to income tax and an additional 20% penalty. Therefore, it’s crucial to be mindful of the tax consequences when investing within your HSA.

Seeking Professional Advice

Investing in an HSA can be complex, especially if you’re new to investing or unfamiliar with the healthcare landscape. Consider working with a financial advisor who can provide personalized guidance based on your unique circumstances. A professional advisor can help you navigate the complexities of HSAs, evaluate investment options, and develop a sound investment strategy within your HSA.

Additionally, consult with a tax professional who can assist you in understanding the tax implications of your HSA investments and withdrawals. They can help you maximize the tax advantages offered by HSAs while ensuring compliance with tax laws and regulations.


Investing in a health savings account can provide individuals with a unique opportunity to save for medical expenses while potentially growing their funds over time. By understanding the basics of HSAs, choosing the right provider, assessing risk tolerance and investment goals, evaluating investment options, monitoring investments, considering tax implications, and seeking professional advice if needed, individuals can make informed investment decisions within their HSAs. Remember, investing involves risks, so it’s crucial to conduct thorough research and consult with professionals before making any investment decisions.