Zacks Investment Management

Terry N. from Baltimore, MD asks: Hello Mitch, I’m a small business owner so I pay for my own health insurance, and I’ve opted for a high-deductible HSA plan. I realize your expertise is in investing and markets, but my question is somewhat related. I learned that I can invest HSA funds, and also that there could be some new tax benefits coming with new legislation. Your thoughts?  

Mitch’s Response: 

Thanks for sending in your question, Terry. For individuals and families where the circumstances work, Health Savings Accounts (HSAs) can be great vehicles for saving – and even investing funds – to pay for future medical expenses. That makes HSAs a key component for some financial plans.¹ 

For readers who may not be familiar, allow me to offer a bit of background on HSAs first. HSAs are specialized tax-advantaged savings accounts designed to accompany a high-deductible health plan (HDHP), which requires individuals to shoulder more upfront medical costs before insurance kicks in. But in exchange for that risk, HSAs offer what’s known as a “triple tax benefit,” which is the real kicker: contributions are tax-deductible, investments inside the account grow tax-free, and withdrawals for qualified medical expenses are also tax-free. 

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You won’t find this type of tax treatment virtually anywhere in the tax code.  

For this reason, HSAs have evolved into beyond being a tool for managing healthcare costs. For some, they are also a stealth retirement planning vehicle—particularly for those who can afford to leave the money untouched until much later in life. For example, after age 65, you can withdraw funds for nonmedical purposes without penalty (though you’ll pay ordinary income tax, just like a traditional IRA). 

This brings me to the part of your question about investing in the funds in your HSA. The short answer is yes—you can absolutely invest the funds in your HSA, which I’d advise for anyone who has ample liquidity elsewhere to cover your deductible. In other words, I think it makes sense to invest if you view the HSA as long-term money—not if you plan on making withdrawals for medical expenses every year.  

As for the tax law changes, I would be a bit more cautious here. The tax bill still has a long way to go before reaching President Trump’s desk, and much could change. So I would not count those chickens until they hatch. But we can at least take a look at some of the provisions that the House put in the bill regarding HSAs, of which the ACA plan integration, fitness expense coverage, and spousal catch-up contributions may apply to your situation:  

• Medicare Part A flexibility: Older Americans automatically enrolled in Medicare Part A would no longer be barred from contributing to HSAs if they remain on employer coverage, restoring access for millions of working seniors. 

• ACA plan integration: Some ACA plans (Bronze and Catastrophic tiers) would be recognized as HSA-compatible, helping both pre-retirement individuals and younger, healthy enrollees tap into HSA benefits. 

• Fitness expense coverage: Up to $500 for individuals and $1,000 for families could be withdrawn tax-free to cover gym memberships or fitness programs (with exclusions like golf or sailing). 

• Spousal catch-up contributions: Couples could make age-related catch-up contributions to the same HSA account, simplifying current restrictions that require separate accounts. 

If passed, we could see enhanced flexibility of HSAs, which could open the door for more access and potentially increase personal savings. That’d be a positive outcome, in my view.  

As you consider how HSAs and other strategies fit into your retirement plan, it’s important to be aware of common missteps that can undermine your progress. To help you steer clear of these pitfalls, I recommend our guide, “8 Retirement Mistakes to Avoid³,” which explores these challenges in detail. Inside, you’ll find insights on mistakes like: 

• Is your portfolio too conservative? 
• Trying to time markets 
• Lack of diversification 
• Not knowing how to adjust lifestyle after retirement 
• Switching strategies too often 

If you have $500,000 or more to invest, claim your copy of our guide, 8 Retirement Mistakes You Need to Avoid³ by clicking on the link below. 

Disclosure