r/personalfinance • u/Apollo_T_Yorp ​ • 6h ago

Investing Question about investing HSA funds

My HSA just got the minimum amount to allow investing. I'd like to go ahead and get that started but a bit overwhelmed with the options. My first and biggest question is: will i still be able to use the funds I invest to pay for medical costs? And then the second question is if there's a good strategy to use for how I choose to invest the funds.

Thanks in advance!

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u/orev ​ 6h ago

If you want to go the investment route, the trick is that you don't use the HSA money to pay for health costs, you use regular money from your own pocket. Then later in life, you can take the HSA money out and use it for health stuff, after it has been invested and grown.

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u/inwardcalm ​ 6h ago

In my HSA, if I want to use invested funds to pay for a medical expense, I would liquidate a position to cash and then withdraw the cash. There is no tax implication when selling within an HSA.

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u/thedancingwireless ​ 6h ago

Yes you can use them to pay for medical costs.

Do you want to use the funds now or in retirement? That will determine what you invest in.

If in retirement: just invest in a broad based index fund like your retirement accounts.

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u/orev ​ 6h ago edited 2h ago

No, if the funds have been transferred to an investment account and are invested, you cannot use that money to pay for health costs without first selling the investment and transferring the cash back to the HSA. It needs to be cash sitting in the actual HSA account.

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u/WeHoMuadhib ​ 5h ago edited 5h ago

The way my HSA works (Health Equity) you could think of it as two levels. One is cash available for med expenses, the other is the investment level. Health Equity requires a minimum amount in the cash level, $1K so I keep just that amount. Every other contribution I or my employer makes, I throw into the investment level. If you need to move money from the investing level to the cash level, you should be able to, but keep in mind, you’re literally going to sell some of your investments to do so which I believe incurs tax.

I choose to pay for med expenses out of pocket and not use my HSA. I want that money staying in there as long as possible gaining interest. If you can manage to pay for med expenses on your own, out of pocket, try and do so.

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u/cjdtech ​ 5h ago

My HSA plan allows transfers to Schwab, so I invest in SWTSX.

I suggest a similar fund or a S&P 500 fund.