The Employee Benefit Research Institute (EBRI) in June of this year released a new research report that revealed many with Health Savings Accounts (HSAs) are not optimizing their investments within their accounts.
The EBRI report explains that “the ability to invest assets within the account” is “one of the largest advantages HSAs offer.” That’s why the institute is concerned that “only 15% of account holders invested their HSAs in assets other than cash.”
How Do HSAs Work?
HSAs are tax-advantaged accounts created for or by individuals covered under high-deductible health plans (HDHPs) to save for qualified medical expenses. Contributions are made into the account by the individual or their employer and are limited to a maximum amount each year.
The funds deposited into an HSA are pre-taxed dollars. This means the HSA contributions are similar to contributions in the traditional Thrift Savings Plan (TSP) or other retirement plan contributions. Both HSA and traditional TSP contributions therefore can reduce your taxable income in the year they are made.
The funds in the HSA accrue earnings and grow tax-free; and HSA funds and the accrued earnings can be withdrawn tax-free to pay for qualified medical expenses, including copayments, coinsurance, and deductibles both currently and in the future.
So, think of an HSA contribution as being a hybrid relative of the traditional and Roth TSP. You get a tax contribution in the tax year the contribution is made like the traditional TSP, but future withdrawals for qualified expenses are not taxable like Roth TSP withdrawals.
An HSA account, however, unlike a health care flexible spending account (HCFSA), which can be used only while employed, belongs to the owner and stays with her or him, including leaving Federal service and retiring from Federal service.
Other Advantages of HSAs
Consider these other aspects that make HSA accounts attractive.
You can use your HSA to pay certain Medicare expenses, including premiums for Part A (if applicable), Part B and Part D prescription-drug coverage, and Medicare Advantage, but not supplemental (Medigap) policy premiums.
Investments in your HSA can be part of your strategy to delay taking your Social Security. Most people have Medicare premiums deducted from their Social Security. If you delay taking Social Security, you will have an alternative source of funds to pay for Medicare premiums.
An HSA account can also be used to cover part of the cost for a “tax-qualified” long-term care insurance policy. You can do this at any age, but the amount you can use increases as you get older.
Devenir Research in 2024 shared that $20,677 was the average total balance (deposits and investments combined) for HSA investment accounts, 8 times larger than an average funded non-investment holder’s account balance. Funded accounts opened in 2004 had the highest average balance at $34,193.
Once you hit 65, you can use your HSA to pay for any nonqualified medical expenses, but you don’t get to take full advantage of the tax savings as you will be required to pay state and federal taxes on those distributions.
There is no limit to the amount of money you can save up in your HSA. Funds that are held in a savings account option typically earn little to no interest and may have a fee.
Why Aren’t More HSA Assets Invested?
So, why do “only 15% of account holders invested their HSAs in assets other than cash?”
I think it may be because many HSA plans require a minimum balance in your account before allowing you to invest in assets other than cash. Most HSA accounts will only let you invest your money in your HSA in stocks and other securities after your account reaches a certain threshold balance. This requirement denies most HSA users from investing, as 51% of accounts hold less than $1,000, according to the EBRI.
Check with your HSA plan administrator to find out if there’s a minimum balance required for your HSA before you can invest. Also, different plans offer different investments, so check in with either your HR department or your HSA provider to learn about which options are available to you.
2025 HSA Contribution Limits
The following are the IRS HSA limits for 2025:
Annual HSA Maximum Contribution
- $4,300 for single coverage ($150 increase from $4,150)
- $8,550 for family coverage ($250 increase from $8,300)
Maximum Annual Catch-Up Contribution
- $1,000 (for HSA-eligible individuals age 55 or older)
HSA Online Resources
Here are some online resources regarding HSAs.
