HSA Investment Guide: Spend It Now or Invest It for Later?

An HSA is a health savings account. It can pay a medical bill today, or you can leave the money in the account and invest it for later. Used the second way, an HSA can double as a retirement account.

The choice depends on your cash.

Use the HSA now if paying another way would cause debt or leave you short.

Consider leaving it invested if you can pay the bill safely and keep good records.

Investing can give the money more time to grow. It can also lose value. The HSA tax rules do not remove market risk. An IUL is sometimes pitched as another way to get "tax-advantaged growth," but it works very differently and caps your upside.

How an HSA investment works

An HSA belongs to you, not your employer. The money rolls over each year. It also stays with you when you change jobs.

An HSA can have three federal tax benefits:

Money you add may lower your taxable income.

Growth inside the account is not taxed each year.

Money used for qualified medical costs may come out tax-free.

"Qualified" means the cost meets the federal HSA rules.

You can keep an HSA in cash. Investing does not happen on its own. You must choose an investment offered by your HSA company.

Choice | Use the HSA now | Pay another way and invest the HSA
Cash today | Keeps more cash in your bank | Uses cash outside the HSA
HSA balance | Goes down | Stays in the account
Chance to grow | Less money remains | More money may stay invested
Main risk | Less is left for later | Investments can fall, and lost receipts can cause tax trouble

There is no prize for keeping the HSA invested while credit card interest piles up. A tax break may not make up for costly debt.

An HSA investment decision starts with cash safety, qualified medical costs, debt, fees, and time. The tax rules come from IRS Publication 969; the decision map is illustrative.

Who can add money to an HSA in 2026?

You generally need all four of these:

an HSA-qualified health plan;

no other health coverage that blocks HSA use;

no Medicare enrollment; and

no one who can claim you as a tax dependent.

The rule is checked month by month. You usually need the right coverage on the first day of that month.

A high deductible alone does not prove that a plan works with an HSA. Ask the health plan or benefits team to confirm it.

A general health flexible spending account can also block HSA contributions. This is often called an FSA. Coverage through a spouse can matter too.

The IRS HSA guide explains the basic rules.

2026 HSA limits

For 2026, the most you can add is:

Coverage | 2026 HSA limit
Self-only | $4,400
Family | $8,750

If you are 55 or older by the end of the year, you may be able to add another $1,000.

These are total limits. Money from you, your employer, and payroll all counts toward the same limit.

If two spouses can each use the extra $1,000, each spouse needs a separate HSA for that person's extra amount.

The 2026 limits come from IRS Revenue Procedure 2025-19.

Source: IRS Revenue Procedure 2025-19; these are 2026 federal limits, employer deposits count toward the same limit, and tax results depend on eligibility and qualified use.

The health plan numbers

A standard HSA-qualified high-deductible plan in 2026 generally has these limits:

Coverage | Deductible is at least | In-network out-of-pocket limit is no more than
Self-only | $1,700 | $8,500
Family | $3,400 | $17,000

A deductible is what you pay before the plan starts paying for many covered services. The out-of-pocket limit is the most you pay for covered in-network care, apart from premiums.

New HSA rules for 2026

Federal law widened HSA access in 2026.

Bronze and catastrophic plans in the individual health market are treated as HSA-qualified plans.

A permanent rule allows certain telehealth care before the deductible.

Some direct primary care plans no longer block HSA contributions.

Certain direct primary care fees can be qualified medical costs.

Each rule has details. Check the plan instead of judging it by its name. The IRS explains the changes in Notice 2026-5.

Should you spend the HSA or invest it?

Start with one question: can you pay the medical bill without using costly debt?

Using the HSA now may make sense when:

you would otherwise carry a credit card balance;

the bill would drain your emergency cash;

you expect more care soon; or

your HSA investment choices have high fees.

Investing the HSA may make sense when:

you can pay the bill without strain;

you have cash for near-term medical costs;

the investment choices are low cost;

you can leave the money alone through market drops; and

you will keep every receipt.

You can split the money. Keep some HSA cash for current care and invest the rest. For a sense of how invested money can grow over time, see what investing $300 a month could do.

Check the HSA before you invest

HSA companies set their own menus and fees.

Look for:

a minimum cash balance;

monthly account fees;

fund fees;

trading or transfer fees;

the time needed to sell an investment; and

the cost to move the HSA.

A mutual fund is a pool of many investments. A fund fee is taken from that pool, so you may not see a separate bill.

The IRS allows direct transfers from one HSA provider to another. It does not limit how many direct transfers you can make. The new HSA company may still have its own terms.

HSA investment options and brokerage accounts

HSA investment options are set by the HSA provider, not by the IRS. Eligibility to contribute to an HSA does not guarantee that the provider offers investing.

An HSA investment account may offer:

a short list of mutual funds;

a brokerage window;

a managed portfolio;

cash plus investments; or

no investment option at all.

A provider may require a minimum cash balance before investing. It may also charge an account fee, investment fee, brokerage fee, or fund expense ratio.

Compare:

HSA investment feature | What to check
Cash minimum | How much must stay uninvested
Fund menu | Diversification, risk, and expense ratios
HSA brokerage account | Trading, transfer, and custody fees
Automatic investing | Whether new payroll money can invest on schedule
Selling investments | Time needed to create cash for a medical bill
Transfer rights | Cost and process to move to another HSA

A "self-directed HSA" usually means the owner can choose among a wider investment menu. It does not remove HSA tax rules or investment risk. The index funds and ETFs guide explains how to compare funds without relying on a brand list.

Which medical costs can an HSA pay?

An HSA can usually pay unreimbursed medical costs for you, your spouse, and certain dependents. The cost must happen after the HSA was opened.

Common examples include:

doctor and hospital care;

dental and eye care;

prescription drugs;

some over-the-counter items; and

other care listed in IRS rules.

A general wellness item may not qualify. The same item may qualify when it treats a diagnosed condition and meets the rules.

IRS Publication 502 is a useful place to check a cost. The IRS also has medical expense questions and answers.

Health insurance premiums usually do not qualify. There are exceptions, such as:

COBRA health coverage after leaving a job;

health coverage while you receive unemployment pay;

certain long-term care premiums; and

Medicare and some other coverage after age 65, but not Medigap.

Do not use two tax breaks for the same bill. You cannot take tax-free HSA money for a cost that insurance already paid. You also cannot deduct the same medical cost on your tax return.

How delayed HSA reimbursement works

You do not always have to take HSA money in the same year as the medical bill.

IRS Notice 2004-50 says there is no federal time limit for later reimbursement. Four rules matter:

The cost happened after you opened the HSA.

It was a qualified medical cost.

No other source paid it.

You did not claim it as an itemized tax deduction.

You must be able to prove all four. Keep:

the itemized bill;

proof you paid it;

the patient's name and date of care;

what insurance paid; and

the date and amount of any later HSA withdrawal.

The IRS does not ask you to send every receipt with your tax return. It can ask you to show the records later.

IRS Notice 2004-50 contains the no-time-limit rule.

Federal rules do not set a reimbursement deadline when the expense happened after the HSA opened, remained unreimbursed, and was not deducted. Keep proof under IRS Notice 2004-50.

Medicare and other easy mistakes

You cannot add new HSA money for months when you are enrolled in Medicare. Medicare coverage can sometimes start earlier than the date you apply. That can turn a recent HSA deposit into an excess contribution.

You may still spend money already in the HSA on qualified costs.

Other mistakes include:

adding more than your limit;

forgetting employer deposits;

using a full-year limit after only part-year eligibility;

paying an old bill from before the HSA opened; and

losing the proof for a delayed payment.

Excess HSA deposits may face a 6% tax for each year they stay in the account. Fixing one has timing and earnings rules. Deal with it before you file if possible.

The "last-month rule" can let some people use a full-year limit when they are eligible on December 1. It also requires them to stay eligible for a test period. Losing eligibility can add income and a 10% tax. Get help before using this shortcut.

Is an HSA worth it for retirement?

For some people, yes. An HSA gives three tax breaks in one account. You may deduct what you put in. The growth is not taxed each year. Qualified medical withdrawals come out tax-free. No other account does all three.

Medical bills in retirement are large. A pool of tax-free money for them can help a lot. After age 65, the rules also loosen, as the next section shows.

It is not free money, though. You need an eligible health plan to add to it. The investments can still fall. You must keep your receipts. If a high-deductible plan does not fit your health, forcing an HSA can cost more than it saves.

What changes after age 65?

Qualified medical withdrawals can still be tax-free.

If you use HSA money for something else after age 65, the usual extra 20% tax no longer applies. The withdrawal can still count as taxable income.

The extra 20% tax also stops after disability. Different rules apply after death. A spouse can usually keep the account as an HSA. A person who is not a spouse is treated differently.

A simple next step

Before you invest HSA money:

Confirm that your health plan works with an HSA.

Subtract employer deposits from your 2026 limit.

Keep enough cash for medical bills you may need soon.

Read the HSA fee and investment list.

Save receipts in one folder.

Do not borrow at a high rate just to keep the HSA invested.

These are federal rules. State tax rules can be different. Health coverage, Medicare timing, and tax facts can also change the answer for one person.

Common HSA investment questions

What are the best HSA investment options?

The best HSA investment options fit the time before the money may be needed, use diversified holdings, and keep total fees low. A person with near-term medical bills may need more cash than someone with a separate medical buffer.

Is an HSA investment account different from a normal HSA?

It is usually the investing part of the same HSA. The provider may keep cash and investments in separate subaccounts. Both remain subject to HSA contribution and distribution rules.

Should I invest all my HSA funds?

Not automatically. Keep enough accessible cash for medical bills you may need to pay from the HSA. Invest only money that can stay through market declines without forcing debt or a badly timed sale.

Can an HSA be a retirement account?

It can support retirement because qualified medical withdrawals can remain tax-free and non-medical withdrawals after age 65 avoid the usual 20% additional tax, though they can still be taxable. It should work alongside, not automatically replace, a 401(k) retirement plan or Roth IRA.

Sources

IRS, Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans; accessed 2026-07-27.

IRS, Revenue Procedure 2025-19: 2026 HSA contribution and health plan limits; accessed 2026-07-27.

IRS, Notice 2026-5: Expanded availability of health savings accounts; accessed 2026-07-27.

IRS, Notice 2004-50: HSA questions and answers; accessed 2026-07-27.

IRS, Publication 502: Medical and Dental Expenses; accessed 2026-07-27.

IRS, Instructions for Form 8889: Health Savings Accounts; accessed 2026-07-27.

IRS, About Form 5329: Additional Taxes on Tax-Favored Accounts; accessed 2026-07-27.

IRS, Form 1099-SA: HSA Distributions; accessed 2026-07-27.

IRS, Medical expense questions for nutrition, wellness, and general health; accessed 2026-07-27.