In the United States, having a sound financial mindset is essential. Common financial management methods include 401(k), Roth IRA, stocks, various insurances, and real estate. However, there are many financial avenues that often get overlooked or talked about less frequently. In this series, I will sequentially introduce four types of investment accounts under the category of “account-based investment channels.”
The first type is the Health Savings Account (HSA). Many people only view HSA as a “medical expense debit card,” neglecting its investment potential and the typical “triple tax advantage”: contributions are tax-deductible or tax-deferred under qualified rules, account growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
Despite its benefits, few people maximize their HSA funds, and even fewer invest their HSAs outside of savings accounts. Additionally, many employers’ HSA providers have high fees and poor investment options, potentially diminishing the advantages (consider transferring to a more cost-friendly platform, following the rules).
The core advantage of HSAs lies not in the ability to use them for medical expenses but in their tax structure comparable to retirement accounts:
– Tax-deductible contributions: Contributions from eligible individuals to an HSA enjoy tax benefits.
– Tax-free account growth: Interest and investment returns within an HSA account usually do not count as income for that year.
– Tax-free withdrawals for qualified medical expenses: Distributions used for qualified medical expenses are tax-free.
Therefore, many people see it as a “medical version of Roth,” using it to cover future medical costs while allowing assets to grow through compounding within the account.
To invest in an HSA, one must meet the IRS-defined eligibility criteria: 1. Must have a High-Deductible Health Plan (HDHP) eligible for an HSA on the first day of the month; 2. No other disallowed health coverage (such as PPOs, HMOs) or medical reimbursement arrangements; 3. Not enrolled in Medicare; 4. Cannot be claimed as a dependent by someone else.
Which type of HDHP qualifies? The 2026 IRS definition for HDHP includes:
– Minimum deductibles: Individual $1,700; Family $3,400.
– Maximum out-of-pocket limits (excluding premiums): Individual $8,500; Family $17,000.
Furthermore, starting in 2026, the latest IRS announcement indicates a “clear expansion” of some scenarios into the HSA framework. For example, telehealth services providing a safe harbor before reaching the deductible will become permanent (applicable retroactively to plan years after 2024); bronze or catastrophic healthcare plans are included in the HDHP definition. This expanded scope provides more opportunities for new immigrants to qualify for HSAs.
The 2026 annual contribution limits for HSAs are: Individual: $4,400; Family: $8,750.
Additionally, supplemental rules allow those aged 55 and above to contribute an additional $1,000 (and each spouse must contribute to their respective HSAs). However, employer contributions count toward an individual’s annual limit, so the individual’s available contribution must deduct the portion contributed by the employer.
Once you enroll in Medicare, your contribution limit becomes 0 starting from that month, and you cannot make additional contributions (note that Medicare may have retroactive effective dates, posing a risk of over-contribution).
A. Cash Flow Strategy: Self-pay for medical expenses to invest HSA funds
Pay for routine medical expenses with regular cash flow, keep HSA funds untouched, and invest in index funds or low-cost investment tools for long-term compounding. Use HSAs for reimbursements or withdrawals when needed.
The premise of this strategy requires meticulous record-keeping: the IRS explicitly mandates maintaining adequate records to prove that distributions are used for qualified medical expenses, not reimbursed by other sources, and not used for itemized deductions in another year.
Two commonly overlooked strict rules are: expenses incurred before establishing an HSA are not considered qualified medical expenses. You can make distributions at any time, but only those used for qualified medical expenses are tax-free.
B. Manage it as a “retirement account,” not a trading account
Choose an HSA provider or investment platform with low fees, comprehensive options, and reasonable investment thresholds (many employer plans may require keeping a cash balance before allowing investments).
The goal is “long-term compounding”: diversify, keep costs low, minimize turnover, and avoid turning the HSA into a high-frequency trading account (tax advantages are not meant for short-term trading success).
C. Post-65, an HSA serves as a “dual-purpose asset”
Non-qualified withdrawals: Usually considered income and may incur an additional 20% tax; however, those aged 65 and older, deceased, or disabled are exempt from the additional tax (normal income tax may still apply).
Partial premium payments: Some Medicare premiums after age 65 may be considered qualified medical expenses (though Medigap plans generally do not qualify).
Using the HSA as a long-term investment account is suitable for individuals who can bear the HDHP deductible risk and have the ability to let the HSA compound within the account. These individuals typically exhibit several characteristics:
– Low or predictable medical usage and stable cash flow. Rare doctor visits or the ability to pay for occasional medical expenses with cash, without frequent reliance on the HSA.
– Have established emergency savings (enough to cover the high deductible), capable of paying the annual deductible in the worst-case scenario upfront, and can handle the cash pressure of a sudden hefty medical bill.
– Belong to the mid- to high-income tax bracket with long-term asset allocation needs. As a significant portion of the HSA’s value comes from tax efficiency, those in higher tax brackets tend to benefit more from the compounding differences of “pre-tax contributions + tax-free growth + tax-free withdrawals for qualified medical expenses.”
Especially for individuals who have maxed out their 401(k) match and are already contributing to Roth/Traditional IRAs, an HSA often becomes the next high-priority “tax-advantaged account.” ◇
Disclaimer: This article is for financial investment reference only. Readers must independently assess and make investment decisions, as individual circumstances vary. If there is a need for investment advice, please consult with a professional. Please understand that all investments carry risks, and “Epoch Times” cannot be held responsible for any related losses.