Should I use the money in my HSA or let it grow?


Editorial team Published on

You should let your Health Savings Account (HSA) grow and invest the money, provided you have enough cash flow to pay current medical bills out of pocket.

An HSA offers a "triple tax advantage" that makes it one of the best long-term wealth-building tools available:

  • Tax-deductible contributions (or pre-tax if done via payroll)
  • Tax-free growth on investments
  • Tax-free withdrawals for qualified medical expenses

The Let-It-Grow Strategy (Recommended if you can afford it)

  1. Pay out of pocket: Pay for your current doctor visits and prescriptions using regular checking or savings money.
  2. Invest the balance: Move your HSA funds out of cash and into mutual funds or ETFs offered by your provider.
  3. Save your receipts: Keep digital copies of all medical receipts and invoices.
  4. Reimburse later: There is no expiration date or time limit on when you must withdraw money for a medical expense. You can let the balance compound for decades, then pull out a lump sum tax-free in the future by matching it to your saved receipts.

When You Should Use Your HSA Now

  • Cash crunch: If paying out-of-pocket medical bills forces you into credit card debt or depletes your emergency fund, use the HSA immediately. Your health and financial stability come first.
  • No investment options: If your employer's HSA provider forces you to keep the money in a zero-interest cash account with no option to invest, there is less benefit to hoarding it, though it remains available for future medical needs.

Rules to Remember After Age 65

  • Non-medical use: After age 65, the 20% penalty for non-medical withdrawals disappears. You can spend the money on anything (like home repairs or travel), though you will pay ordinary income tax on non-medical withdrawals—making it function like a traditional IRA.
  • Medical use: Qualified medical expenses (including Medicare premiums) remain 100% tax-free forever.