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How can you use your health savings account (HSA) as a retirement investment?

When used strategically, HSAs can boost the health of your retirement savings.

After turning 65, you can withdraw funds from your health savings account (HSA) for non-medical expenses without paying a penalty tax. And regardless of age, you still get the triple tax benefit: tax-deductible contributions, tax-free growth on your investments and tax-free withdrawals on qualified health expenses.

How do I use my HSA to save for retirement?

An HSA investment for retirement goes a long way when you use it strategically. If you open an HSA through a bank, you’re generally limited to investing in a savings account that pays little interest. Your employer may offer an HSA with a larger investment menu. But you can also open an HSA through most brokerage companies like Fidelity and Vanguard. This gives you access to the entire investment universe.

Here are some common HSA investment options along with their pros and cons.

Exchange-traded funds (ETFs)

ETFs aim to deliver returns similar to a given index like the S&P 500, which is a grouping of the largest publicly traded companies in the US. This offers instant diversification, which can protect your investments from market volatility. ETFs generally have low fees because of the passive way they are managed. But some ETFs track specific market sectors such as tech, so if that sector is failing, your investment returns can suffer too.

Mutual funds

These are diversified baskets of stocks or bonds. Some are actively managed to outperform a particular market index such as the S&P 500. However, mutual funds can have large investment minimums and management fees.


You can build an HSA portfolio by buying shares of individual stocks for maximum growth. But investing all your HSA funds in stocks can be particularly risky because you can lose most or all your money during a market downturn.


You can take a conservative approach by investing your HSA in bonds. While this can protect your investments, it leaves little room for growth. So this may not be the best idea especially in a low interest-rate environment.

Experts recommend you diversify your HSA portfolio with different investment options based on your goals, risk tolerance and financial situation.

Healthcare investments

HSAs are designed to help you cover medical expenses. Total healthcare costs in retirement will average $662,156 for a healthy 65 year-old couple retiring in 2021, according to a study by HealthView Services.

But a well-diversified HSA can offer more than just strong investment returns. Unlike flexible spending accounts (FSAs), the money in your account rolls over each year, so it keeps growing with investment earnings.

Plus, HSAs offer key tax benefits. First of all, you can deduct the contributions you make to an HSA from your federal income taxes. You can’t deduct employer contributions, but these won’t be treated as part of your taxable income.

Next, your investment earnings such as interest and dividends are tax-free at the federal level. Finally, money you withdraw from your HSA won’t be taxed as long as you use it on qualified health expenses. You can find qualified medical expenses on IRS publication 502, Medical and Dental expenses.

“Qualified medical expenses” casts a wide umbrella. It includes physical exams, long-term care services and even seeing-eye dogs.

If you’re under the age of 65, you would pay a 20% penalty in addition to income tax on money you withdraw for non-medical expenses. If you’re 65 or older, you only pay income tax for non-medical expenses.

Who can invest in an HSA?

To open an HSA, you must have a high-deductible health plan (HDHP) that meets certain requirements. For 2021, your annual deductible must be at least $1,400 for self-only coverage or $2,800 for family coverage. So check with your provider to make sure your plan qualifies you for an HSA.

You also need to meet these other requirements:

  • Be at least 18 years-old
  • Have a valid Social Security number
  • Not be claimed as a dependent on another person’s tax return
  • Not be covered by a health plan that isn’t an HDHP
  • Not be enrolled in Medicare

How do I open an HSA?

Your employer may offer an HSA. But make sure you’re comfortable with their administrative fees and investment options. You may find a better option elsewhere.

Here’s how to find the best HSA.

  • Research HSA providers like brokerage firms, banks and insurance companies
  • Visit the provider’s website and search for HSA
  • Select open account
  • Create an account with a password and username
  • Provide personal information, including:
    • Name
    • Address
    • Social Security number
  • Provide bank account information like account and routing numbers
  • Pick investment options
  • Fund account

Are there investment limits on an HSA?

Every year, the IRS sets contribution limits on HSAs. For 2021, the HSA contribution limits are $3,600 for self-only coverage and $7,200 for family coverage. That includes any employer contributions.

But if you’re 55 or older, you can contribute an additional $1,000 in catch-up contributions. That means that for people who are at least 55, the HSA contribution limits are $4,600 for self-only coverage and $8,200 for family coverage.

Are there age limits on HSA contributions?

To open an HSA, you must be at least 18 years old.

How do you pick an HSA provider?

The best way to find an HSA that’s right for you is to research. Search online for HSAs from different brokers and banks. Make sure you pay attention to key details.

  • Minimum initial deposits: Some providers require large minimum deposits before you open an account, while others require none.
  • Investment minimums: Some providers require you reach a certain account balance before you can start investing in assets like stocks and ETFs.
  • Fees: Administrative and management fees vary across providers. The funds you’re invested in may also charge management fees called expense ratios, and these are deducted from your account. If you’re managing your own HSA by picking securities like stocks and ETFs, be aware of any commissions and trading fees. Moreover, some mutual funds require minimum deposits.

Compare retirement accounts

These brokers offer accounts geared for retirement savers.

Name Product Annual fee Available asset types
The IRA Club
$175 per year
Real estate
Open a self-directed IRA and begin investing with true flexibility.
Tradestation Crypto IRA
$0 per month
Stocks, Bonds, Options, Mutual funds, ETFs, Cryptocurrency
Tradestation's IRAs offer exposure to stocks and options as well as Bitcoin, Ethereum, Litecoin, Bitcoin Cash and USDC.
$1 per month
Invest your spare change. Anyone can grow wealth.
Bitcoin IRA
$195 per year
Invest your retirement funds in a mix of cryptocurrency and physical gold.
SoFi Invest
Stocks, ETFs, Cryptocurrency
A free way to invest in most equities.

Compare up to 4 providers

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Bottom line

HSAs can be useful retirement investment vehicles when used correctly. After you turn 65, you can withdraw funds from your HSA for non-medical expenses without owing a penalty charge. However, you’d still owe income tax on the withdrawal. But your contributions will always grow tax-free in the account regardless of age.

To make the most out of your HSA investment for retirement, you need an account that charges low fees and offers reliable investment options. So be sure to compare brokerages to find the best HSA.

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