How to transform your HSA into the ultimate investment vehicle

Health Savings Accounts (HSAs), as the name implies, help people save for medical expenses. —and many can double as triple tax-advantaged investing accounts. 

Before we walk you through those tax advantages, and the “shoebox” strategy that unlocks them for retirement, here’s an important caveat upfront: You can only contribute to an HSA by meeting a few requirements, namely being enrolled in a high deductible health plan (HDHP).

This type of health insurance isn’t for everyone. It comes with the potential for high out-of-pocket medical costs, so it’s typically best suited for healthier individuals. But if you find an HDHP makes sense for your situation, consider opening an HSA. Then strap in for some unparalleled tax treatment.

How the small-but-mighty HSA holds its own

Relative to the 401(k) and IRA, an HSA has modest contribution limits of $4,150 for plans with individual coverage and $8,300 for those with family coverage. That’s as of 2024.

But those dollars, when invested, pack a much heavier punch. Because while 401(k)s and IRAs come with either tax-deferred contributions or tax-free withdrawals, HSAs offer both. Toss in tax-free growth, and that’s where the “triple” in triple tax-advantaged comes from.

Don’t get us wrong; two tax perks are nothing to sneeze at. In some cases, such as when matching money is on the table, you likely should start filling up your 401(k) first.

But an HSA can make for a great addition to your lineup of retirement accounts. Here’s how to make it happen.

Unboxing the HSA shoebox strategy

Once you’re enrolled in an HDHP, you can open an HSA either through your employer or on your own before contributing to it and investing the funds. Similar to 401(k)s, an HSA is yours and stays with you after you leave your job. 

From there, repurposing its tax advantages for retirement boils down to three simple steps:

Step 1: Save your receipts

Here’s where the “shoebox” strategy gets its name. A key feature of HSAs is there’s no time limit for getting a qualified medical expense (QME) reimbursed. That’s how a surgery in your 40s can become retirement income in your 60s. Just keep your QME receipts stashed safely in a shoebox, folder, you name it. And bear in mind, any expenses you racked up before you opened an HSA aren’t eligible for reimbursement. 

Step 2: Do nothing

Leave your HSA investments untouched and let compound growth do its thing. Consider paying for routine medical expenses with cash on hand, and building up an emergency fund as a hedge against bad luck and that high deductible you signed up for.

Step 3: Come retirement, cash in

Years or even decades down the road, when the time comes to start tapping into your HSA for retirement income, simply start cashing in those QME receipts. As we mentioned earlier, there’s no time limit for getting reimbursed, so you can wait as long as you want or need before making tax-free withdrawals. 

You can technically use your HSA penalty-free for anything, no receipts required, after you turn 65. But crucially, those non-QME withdrawals count as taxable income, negating one of your HSA’s three precious tax advantages.

See all your retirement accounts—HSA included—side-by-side

If or when the time comes for you to set up an HSA, you’ll be ready to make the most of it for retirement. And by connecting your external HSA account to Betterment, you can see it side-by-side with all the other accounts in your retirement goal. It may not add much to your overall balance in the beginning, but with time—and triple the tax advantages—that may change soon enough.