Investing Your HSA For Retirement

by | | Investing, Retirement

Investing your HSA for retirement means skipping the default cash account and investing in stocks instead. Here’s how.

Most HSA Money Is Not Invested

Money in a Health Savings Account (HSA) goes into a risk-free cash account by default. This is because most people use their HSAs to pay current medical expenses. If you need the money now, you shouldn’t take investment risk.

Savvy readers know that if you can afford to, you should use your HSA as a retirement account. This means skip the cash account and invest your HSA for long-term growth.

Use A Company That Lets You Invest

Many HSA providers, such as local banks and credit unions, only offer a cash account. Some HSA companies also offer one or both of the following:

  • A pre-selected menu of stock and bond mutual funds.
  • A self-directed brokerage account that lets you choose your own investments.

Pre-Selected Menu

A menu of stock and bond mutual funds is convenient, but make sure the fees are low and the investments are sound.


  • Minimum balance in cash account. They want you to hold cash because they lend it out to make money. You want a low minimum cash balance.
  • Fees. Often there is a quarterly or annual fee to use the mutual fund menu. This may be a flat dollar amount, or a percentage of the assets invested in the mutual funds. A flat dollar amount may be acceptable, but don’t pay a percentage of assets just to use the fund menu.
  • Quality of investment choices. Are they evidence-based? Or expensive and actively managed?

Self-Directed Brokerage Account

Some companies let you open a self-directed brokerage account (SDBA) at a firm like Charles Schwab or TD Ameritrade.

Benefits of an SDBA:

  • You can invest in whatever you want, not just a pre-selected menu.
  • If you already use Schwab or TD for your other investments, you can have your HSA in the same place.
  • If you link your Schwab or TD accounts to a personal finance app, your HSA will sync to your app too.
  • If you use a financial advisor, he or she can manage your HSA as part of your retirement portfolio.

Again, you want a low minimum cash balance, and don’t pay a percentage of assets just to use an SDBA.

Which HSA Company Should I Use?

The HSA landscape changes constantly. Instead of making recommendations that could become outdated, we offer a link to Investopedia’s list of best HSA providers.

As with many such lists, Investopedia gets a commission if you click through and open an account. With that said, the list is useful, and ER Doc Finance receives no compensation of any kind.

What To Invest In

If you won’t be tapping your HSA for decades, invest it 100% in stocks for the most long-term growth. Stocks are risky, which is why they have a high expected return.

For less risk, add some bonds instead. The below guidance assumes you’re investing your HSA 100% in stocks.

Using Pre-Selected Menu

If you’re choosing from a menu and your HSA is small, just use one low-cost index fund like Vanguard 500 Index Admiral (VFIAX), which tracks the 500 largest U.S. companies, or Vanguard Total Stock Market Admiral (VTSAX), which tracks the entire U.S. stock market. If your HSA gets larger, you could add an international stock market index fund.

Using SDBA

If you’re using an SDBA, look at your HSA as part of your retirement portfolio. Then, put your portfolio’s single riskiest investment in your HSA. The most risk = the highest expected return over a long period of time (no guarantees though).

For example, we often put U.S. or international small company value stocks in our clients’ HSAs. Small and value are two factors that increase expected return.

To explore investing your HSA for retirement, schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.

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