Health Savings Accounts and Investing

A health savings account (HSA) is a medical savings account for people with high-deductible health plans. You pay no income tax on the money you place into your HSA until you withdraw it. The tax advantage makes HSAs a useful retirement planning tool now while planning for future medical expenses.

Terry Turner, writer and researcher for RetireGuide
  • Written by
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

    Read More
  • Edited By
    Matt Mauney
    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for,, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

    Read More
  • Reviewed By
    Ebony J. Howard, CPA
    Ebony J. Howard, CPA

    Ebony J. Howard, CPA

    Credentialed Tax Expert at Intuit

    Ebony J. Howard is a certified public accountant and freelance consultant with a background in accounting, personal finance, and income tax planning and preparation.  She specializes in analyzing financial information in the health care, banking and real estate sectors.

    Read More
  • Published: September 29, 2020
  • Updated: May 23, 2023
  • 6 min read time
  • This page features 8 Cited Research Articles
Fact Checked
Fact Checked

A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

Cite Us
How to Cite's Article

APA Turner, T. (2023, May 23). Health Savings Accounts and Investing. Retrieved June 20, 2024, from

MLA Turner, Terry. "Health Savings Accounts and Investing.", 23 May 2023,

Chicago Turner, Terry. "Health Savings Accounts and Investing." Last modified May 23, 2023.

What Is a Health Savings Account?

A health savings account, or HSA, lets you set aside money for certain medical costs, including deductibles, coinsurance, copayments and other qualified expenses. Most health savings accounts cannot be used to pay for insurance premiums.

The money you and your employer put into your HSA is not counted as income for tax purposes, so you maximize your investment in the account while avoiding income taxes on your contributions.

HSAs are only available to people who have high-deductible health insurance plans. The Internal Revenue Service defines high-deductible plans as having a deductible of at least $1,600 for an individual or $3,200 for a family in 2024.

High-deductible plans usually charge higher deductibles in exchange for lower monthly premiums. Somewhere between 23 million and 36.8 million Americans — employees and their dependents — were covered by high-deductible policies in 2018, according to the Employee Benefit Research Institute.

Did You Know?
In 2024, your out-of-pocket expenses with a high-deductible health plan can be as high as $8,050 for an individual or $16,100 for a family.

How to Set Up a Health Savings Account for Retirement

To qualify for an HSA, you first have to be enrolled in a high-deductible health plan. You’ll have to open a separate health savings account.

You may be able to set up an HSA through your employer if your job offers one. If it doesn’t, you may find plans in the health care marketplace or through health insurance companies. You may also be able to set up an HSA through your bank.

Once you enroll in an HSA, you will receive a debit card or checks you can use to pay for qualified medical expenses your insurance does not cover.

How you deposit contributions to your HSA and banking services to monitor and maintain your account can differ depending on the insurer or financial institution you choose.

Did You Know?
Health savings accounts vary. Some may charge fees for services such as opening or closing the account or for monthly maintenance fees. Ask about these costs when considering an HSA.

HSA Retirement Benefits and Tax Advantages

A health savings account can give you immediate tax advantages while allowing you to build substantial savings to pay for medical expenses throughout your career and into retirement.

HSAs have become a popular retirement planning tool because of their tax advantages and investment potential since they first became available in 2004. By the end of 2018, there were 9.8 million HSAs in the United States worth $22.8 billion, according to the Employee Benefit Research Institute (EBRI).

Health Savings Account Tax Advantages
  • If you have an HSA through your employer, you pay no income taxes on your contributions.
  • If you set up your own HSA, all your contributions are tax deductible.
  • You do not have to pay taxes on any money to withdraw for qualified medical expenses.
  • You do not pay taxes on the growth of your HSA.

Unlike a flexible spending account, or flex account, money left in your HSA at the end of the year can be rolled over into the next year. EBRI estimates that 93 percent of HSAs ended 2018 with money left to roll over for future medical expenses.

Over the course of your career, annual rollovers could add up to substantial savings.

Investing Strategies for a Health Savings Account

There are several investment strategies for getting the most out of your health savings account.

HSA Investing Strategies
  • Max out contributions
  • Avoid spending from your account when you can
  • Consider investments carefully
  • Take advantage of family and employer contributions

Taking advantage of these strategies requires you to consider your HSA as one element of your retirement planning toolbox rather than just a way to cover unexpected medical expenses.


Make Maximum Contributions

Maxing out your HSA contributions before you turn 65 is one of the ways to grow your account. Your contributions are tax deductible or tax free, depending on your plan, until you sign up for Medicare.

You are allowed to contribute up to $4,150 a year for self-coverage or up to $8,300 for family coverage in 2024. The maximum amount may be adjusted for inflation each year.

Avoid Spending from Your Account

If you can pay for medical expenses without touching your HSA, you will improve the account’s potential for growth toward retirement.

Also be aware that if you spend any money from your HSA on anything that is not a qualified medical expense under your plan, you will have to pay a 20 percent penalty and income tax on the money you withdraw.

Consider Your Investment Options

Unlike a standard low-interest savings account, some HSAs allow you to invest in mutual funds, individual stocks or exchange-traded funds (ETFs).

Any profits you make from these investments are tax-free, so long as you use them to pay for qualified medical costs.

Take Advantage of Family, Employer and Catch-Up Contributions

Contributions to an HSA set up through your employer can come from you, your employer or both. Any contributions from your employer do not count as income, so it’s not taxed. Like employer contributions to a 401(k) plan, this is like receiving free money.

If you’re 55 or older, you can take advantage of catch-up contributions as you get closer to retirement. This allows you to contribute an extra $1,000 a year. Your spouse can also contribute an extra $1,000.

How Your HSA Works With Medicare

You can no longer make tax-free contributions to your health savings account for up to six months before you sign up for Medicare.

You should take this into account if you plan to work past your 65th birthday. If you are new to Medicare and decide to keep your group health insurance through your job while enrolled in Medicare, you will be hit with a tax bill for your HSA contributions.

But you can use the money you’ve saved in your HSA to cover medical expenses Medicare does not.

HSA qualified expenses under Medicare include:
  • Deductibles
  • Copays
  • Coinsurance
  • Medicare Part B medical insurance premiums
  • Medicare Part D prescription drug coverage premiums
  • Dental care
  • Hearing aids
  • Insulin and diabetic supplies
  • Over-the-counter drug costs
  • Prescription medicine
  • Vision care

You cannot use money from your HSA to pay premiums for Medicare supplemental insurance, also called Medigap. This is not considered a qualified expense and will result in a 20 percent penalty, and you’ll have to pay income taxes on the money you use to make the payment.


Connect With a Financial Advisor Instantly

Our free tool can help you find an advisor who serves your needs. Get matched with a financial advisor who fits your unique criteria. Once you’ve been matched, consult for free with no obligation.

Last Modified: May 23, 2023

8 Cited Research Articles

  1. U.S. Internal Revenue Service. (2020, February 18). Publication 969 (2019), Health Savings Accounts and Other Tax-favored Health Plans. Retrieved from
  2. Linecker, A.C. (2020, February 18). HSA Investment Advice for 2020: Think Twice Before Spending HSA Funds. Retrieved from
  3. U.S. Internal Revenue Service. (2020, January 21). Publication 502; Medical and Dental Expenses (Including the Health Coverage Tax Credit). Retrieved from
  4. Fronstin, P. and Spiegel, J. (2019, December 5). Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2018: Statistics From the EBRI HSA Database. Retrieved from
  5. Mayo Clinic. (2019, March 16). Health Savings Accounts: Is an HSA Right for You? Retrieved from
  6. U.S. Department of the Treasury. (2015, December 1). Health Savings Accounts (HSAs). Retrieved from
  7. (n.d.). Health Savings Account (HSA). Retrieved from
  8. (n.d.). Setting up HSAs. Retrieved from