How to Turn Your HSA Into a $1M Investment Account

**Steve Chen** (0:10)
Hi, I'm Steve, a former public school teacher who now teaches money in an easy to understand way. Most people hear health savings accounts and immediately file it under boring adult stuff. And HSA is a pretty remarkable account. It's usually just a place to park money for doctor visits and prescriptions. Money goes in, money comes out, and you don't really think about it again until you're sick and you're running into CVS. And honestly, that's not wrong. It's exactly how the account was designed to work. But the super rich have found a loophole that allows you to turn this boring little account into one of your biggest investments. This approach is widely understood in high net worth circles, even though it barely comes up in everyday conversations. And that's the part I want to change. Most people deserve to know how to use an HSA to its full potential. So I'm going to show you two people who do almost everything the same, but one of them has this insider knowledge that changes the outcome completely. Let's start with the normal approach. Meet Judy, a preschool teacher at a busy little school filled with kids racing down hallways and tugging at her sleeve. And some days, keeping up with them means reaching for her inhaler. Thankfully, she's on a high-deductible health plan, and her HSA covers the cost of the prescriptions, so she can stay energized and present with her students. Each year, she decides to max out her HSA, which has an annual limit of $4,400. Her employer contributes $1,000, and Judy covers the remaining $3,400 herself, which works out to be around $283 per month. Over the year, she uses the money for inhalers, doctor visits, and the occasional urgent care trip. By December, most of the accounts is gone, and her balance ends the year close to $0. This is basically the normal way to use an HSA, and it works exactly as intended. Now let's meet Bridget, Judy's twin sister. She's the same age, earns a similar income, and works as an office clerk at an engineering firm. Just like her sister, she deals with asthma attacks, and sometimes has to slip out of meetings to catch her breath. But when Bridget pays for her inhalers at the pharmacy counter, she actually doesn't use her HSA. Even though she contributes the same amount as Judy each year, when medical bills come up, she pays them out of pocket, leaves the HSA untouched, and invests the balance in broad index funds, letting it sit over time. But then, isn't Bridget missing out on the normal benefits of an HSA? Well, not at all. In fact, this is the loophole the super rich figured out. You actually don't have to reimburse yourself from your HSA right away. If Bridget buys an inhaler today, she doesn't have to submit a claim this month or even this year. She can keep the receipt, document the expense, and wait decades before taking the money out. During this time, her HSA stays invested and continues to compound. She covers medical costs from a checking account that was never going to grow anyway. As a result, her HSA is converted from a spending account into a long-term investment account. Now, over a 40-year working lifetime, assuming a long-term average return of around 10%, Bridget's HSA grows to about $1.9 million.
Judy's does not, because Judy keeps draining this account as she goes. Now, let's fast forward. Both sisters will have medical expenses later in life. Because they both have asthma, these costs are likely to increase with age. The condition could worsen, and either of them could develop chronic obstructive pulmonary disease like their mother, which might require specialist care. Some of this will be covered by Medicare and maybe a supplemental plan. But plenty of it won't. Deductibles, co-pays, and uncovered services can still add up fast in retirement. And this is where Bridget's approach really pays off. By the time she retires, she has a record of $96,000 in out-of-pocket medical expenses from earlier in life. She reimburses herself from her HSA, bringing the balance down from roughly $1.9 million to about $1.8 million. This remaining account is still invested and available to cover future medical costs in retirement, instead of pulling from a Roth IRA or other retirement accounts. Now, what makes an HSA so attractive as an investment vehicle is that it's the only account that has three tax benefits. One, money goes into an HSA and reduces taxable income. Two, growth inside the account is not taxed along the way. And three, withdrawals from qualified medical expenses are also tax-free. This means that when Bridget adds money to her HSA, she lowers her taxable income that year. When it's growing inside her HSA, she avoids taxes on dividends and investment gains. And when she uses it for medical expenses during her later years, those withdrawals come out tax-free. It's also worth mentioning that if Bridget ever decides she wants to use the money for something other than medical expenses, she can. But then she will forgo the tax-free treatment on withdrawals and pay ordinary income taxes on the amount she takes out. Now, if you want to learn more about tax advantage accounts, I've put together a simple spreadsheet that lets you compare your options side by side. It's completely free to use and a helpful tool if you're still getting familiar with how these accounts work. I'll drop a link in the description down below. Now, not everyone automatically qualifies for an HSA. There are a few boxes that you need to tick before you can use it the way that Bridget does. To start, you might be wondering whether you even qualify for an HSA. You see, not everyone does. In fact, only around 10% of Americans currently have an HSA, largely because eligibility depends on the type of health insurance you're enrolled in. To qualify, you need to be enrolled in a High Deductible Health Plan, or HDHP, that falls within two boundaries for 2026 First, your deductible must be at least $1,700 for individual coverage or $3,400 for family coverage. Two, your total annual out-of-pocket cost must be capped at $8,500 for an individual or $17,000 for a family. Let's say that you're on a plan through your employer. In the fine print, you see a $1,000 deductible. This is the amount you would need to pay towards your own medical expenses on top of your monthly premiums before insurance starts helping. You also see an out-of-pocket maximum of $6,000 per year, which is the most you would be expected to pay if you have big medical expenses before your insurer will take over 100% of the cost. Even if this plan feels expensive, these numbers disqualify you from an HSA because the deductible is too low under IRS rules. You also won't qualify if you have any other non-HDHP coverage like Medicare or if you're listed as a dependent on someone else's tax return, such as a parent or a spouse. On the other hand, if you're on a plan with a $2,500 deductible and a $7,500 out-of-pocket maximum and you don't have any other health coverage, then yeah, you're going to be eligible. You can open an HSA through a brokerage like Fidelity, Lively, or sometimes through an employer-selected administrator. You open the account online, link your bank or payroll, and decide how contributions flow in. Choosing a provider, the key thing to look for is whether the account lets you invest most of the balance, keeps fees low, and offers broad index funds. Without these features, the account stays a short-term spending tool instead of becoming a long-term investment. Now, let's say that you've confirmed your eligibility and opened your HSA. Well, now what?