The Hidden Investment Potential of Your HSA
October 1, 2026
Health Savings Accounts were introduced in 2004 as part of the Medicare Prescription Drug, Improvement, and Modernization Act during the George W. Bush administration. These accounts allow those with a High Deductible Health Plan (HDHP) to open a tax-free health savings account to help pay medical expenses until they meet the high deductible.
Unlike a Flexible Savings Account or FSA, if there is still money in your account at the end of the year, then you may roll those funds over into the next year – even if you no longer have an HDHP. Therefore, if you save $3000 in your HSA account and only spend $1200 on medical expenses, then the remaining $1800 will stay in your account the following year.
In addition to helping those with an HDHP pay for their medical expenses tax-free, an HSA can actually be a wise investment account when approached correctly.
Here’s everything you need to know about optimizing your HSA.
The Triple Tax Advantage
An HSA is a triple tax-free account, which means that the contributions you make are tax-deductible, your earnings grow tax-free, and as long as the funds are spent on health care, it comes out of the account tax-free, too.
“You get a tax benefit on the way in. You get a tax benefit when it’s growing, and you don’t pay any tax coming out,” says Jay McGowan, financial expert at The Welch Group.
Yet another perk of an HSA is that you do not have to take your funds out the same year you receive health care. As long as you save your receipts, you can withdraw that money much later. For instance, if you have a baby when you’re 35 and keep every out-of-pocket receipt, you could withdraw that HSA money at age 55 and use it to buy anything you want, free of any taxes or penalties.
Technically, you can spend your HSA funds on anything, but if you withdraw money for non-health care expenses before age 65, then you will have to pay taxes at your marginal tax rate on the entire withdrawal, as well as pay a 20% penalty. If you spend funds on anything besides health care after 65, you’ll still be taxed, but you won’t be penalized.
Contribution Limits
You can accept contributions from anyone, an employer, and yourself. For 2026, the maximum annual contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.
“You have to be enrolled in a high deductible health care plan to be eligible to participate in an HSA,” says McGowan.
For 2026, a qualified HDHP has the following minimum and maximum yearly deductibles with other out-of-pocket expenses:
- Self-only coverage: $1,700-$8,500
- Family coverage: $3,400-$17,000
Even though your HSA has annual contribution limits, your total balance has no limit. That means that if you consistently make your maximum contributions without withdrawing funds, your balance can grow significantly over time.
Building a 6-Figure HSA
If you are fortunate enough not to have any major health care needs, then an HDHP might be the right choice for you. If you’re healthy, you may not even need to touch those HSA funds, allowing them to roll over each year.
If you can afford to max out your HSA at the beginning of the year, then your balance can start compounding tax-free as soon as possible. Then, if you can also pay the majority of your health costs without using your HSA, then you can save all of those receipts and withdraw the money tax-free later on, when you need it more.
Many people don’t realize you can invest the money in your HSA. Most HSA providers pay less than 0.5% interest a year. But they also let account holders move funds from the cash portion to mutual funds, exchange-traded funds, or other investment options they offer.
By making maximum contributions, saving your HSA funds for later, and investing part of your balance, you could grow a six-figure healthcare reserve.
Spending on Health Expenses
The best thing to do with your HSA, of course, is to use it on what it’s meant for: to pay for your health care. According to Fidelity Investments, a 65-year-old who retires in 2026 may spend an average of $185,500 on health and medical expenses during retirement, up 7.5% from last year. If your health care expenses are low now, they may not always stay that way.
“The best place to start is to look at your regular health care expenses, like if you go to the dentist twice a year, if you get glasses, if you know you go to your doctor or have prescriptions,” says Carolyn McClanahan, a physician and founder of Life Planning Partners.
Once you have a realistic estimate of your annual health care expenses, then you can start optimizing your HSA spending.
Your funds can be used tax-free for qualified medical expenses, which generally include:
- Doctor and hospital visits
- Prescriptions
- Over-the-counter medications and health care products
- Dental care
- Vision coverage
- Mental health services
- Medical equipment and supplies
“If you’re on a high deductible plan with an HSA, then you should max out your HSA every year, irrespective of your health-care costs or your deductible,” says McClanahan. “One, you get a great tax savings, and two, you get to use that tax-free for any health-care expense the rest of your life. So you want to build that account up.”
Don’t Leave Behind an HSA
The worst kind of account to inherit is an HSA. It becomes 100% taxable to the heir at ordinary income tax rates the year you pass away. But if you donate the money to a charity, it remains tax-free. If you want to leave something behind for anyone, an IRA or a life insurance policy may be a better option. Experts recommend spending your entire HSA balance before passing and leaving the remainder to your heirs.
At Insureyouknow.org, you can store all your financial and medical records in one organized place, making it simple to plan for the future and optimize your HSA investment options.