Invest in Your HSA for the Long-Term


Health Savings Accounts (HSAs) were designed to help consumers pay for medical expenses not covered by their high deductible health insurance plans (HDHPs), but they can also be a tax-smart strategy for supplementing your retirement savings. If you don’t need to withdraw your HSA contributions each year to pay for medical expenses, consider investing your HSA for the long-term.

HSA Investments Are Growing

HSA growth has been substantial as more and more employers are offering HDHPs and more consumers understand the tax benefits of HSAs. As of June 30, 2021, there were more than 31 million HSAs with $93 billion in assets, and, approximately $30 billion of HSA dollars were invested (as opposed to being held in cash deposits), up 73% year over year.1

Because It’s Tax-Free Money

The tax benefits associated with HSAs allow you to save and grow money that will never be taxed.  

  • Eligible HSA contributions are tax-deductible for every HSA owner, regardless of income level.
  • Investment earnings in the HSA grow tax-deferred.  
  • Withdrawals from the HSA are tax-free if used to pay for qualified medical expenses incurred by you (the HSA owner), your spouse, or your dependents, regardless of whether you are still covered by an HDHP or are otherwise eligible to contribute to an HSA.

You can continue growing tax-free investments long past your retirement date or after you change jobs and are no longer covered by an HDHP. If you withdraw from your HSA and do not use the money to pay for medical expenses, the withdrawal must be included in your gross income and may be subject to an additional 20% excise tax. The 20% penalty does not apply, however, once you attain age 65 (or, become disabled). 

By deferring withdrawal of your HSA assets until later to help pay for medical expenses in retirement, you’ll get the full extent of the tax benefits. But even if you use HSA money for other things after age 65, there is no penalty. You will still have to claim the withdrawal as taxable income, but the tax benefits are the same or better than if you saved in a Traditional IRA. 

Invest for the Long-Term

Many people withdraw as much as they put into their HSA each year to pay their current medical expenses, so long-term investments are not needed in every HSA. But if you can let your HSA contributions accumulate year over year, consider investing for the long-term in your HSA. In fact, with the right custodian, you can invest your HSA in the same type of alternative investments that you use in your self-directed IRA.

One investment strategy used by HSA owners is to divide their HSA investing into three tiers. The first tier is held in cash or another liquid option to cover any immediate medical expense they want to pay with HSA assets. The second tier could be a set dollar amount invested conservatively and earmarked to help pay for deductibles each year. The top tier is used for long-term investments that are meant to grow in the HSA over a period of years to help pay for medical or other expenses in retirement.  

Not Everyone Is Eligible to Contribute to an HSA

To be eligible to contribute to an HSA, you must meet four requirements:

  • Be covered by a high deductible health plan (HDHP),2
  • Not be covered by another health plan (with limited exceptions for preventive care),
  • Not be claimed as a dependent on someone else’s tax return, and 
  • Not be enrolled in Medicare (HSA contribution eligibility generally ends at age 65). 

The annual contribution limit is adjusted for cost-of-living increases year to year. Your contribution limit generally must be prorated for the number of months you were HSA-eligible if you were not covered for the entire year.


Rollover Rules for Retirement Savings in an Employer Plan vs. an IRA

  Contribution Limit if you have Self-Only Coverage Contribution Limit if you have Family Coverage Catch-up contribution for those age 55 or older
2021 $3,600 $7,200 $1,000
2022 $3,650 $7,300 $1,000


Contributing to an HSA does not affect how much you can contribute to an IRA or a 401(k). If you’re able, you can contribute the maximum annual amount to an HSA, an IRA and your workplace plan.

Find out more about a Mainstar Trust HSA.


1 Devenir, 2021 Midyear HSA Market Statistics & Trends, September 16, 2021, 

2 An HSA-eligible high deductible health plan (HDHP) must require at least a minimum deductible be paid before providing benefits (with exceptions for preventive care) and must have a cap on the amount of out-of-pocket expenses. For 2022, the minimum deductible is $1,400 for self-only coverage and $2,800 for family coverage. For 2022, the maximum out-of-pocket expense cap cannot exceed $7,050 for self-only coverage and $14,100 for family coverage.