I have a health savings account (HSA) linked to my high-deductible health plan (HDHP). I have been contributing to it for several years at the annual maximum. I have the HSA through UMB. The account is divided into three sub-accounts:

  1. Deposit Account. I think of this as a sort of buffer. The first $1,000 contributed to the HSA must go here; everything above that must go into a different account.
  2. Money Market Sweep Account. This one isn't FDIC insured. It returns the money market mutual fund rate, which is nearly nothing.
  3. Self-Directed Investment Account. This is basically a brokerage account for mutual funds. The fund selection ranges from very conservative to pretty risky.

My goals for the HSA are to be able to cover my family's routine medical expenses, which are around $500 per year, and have enough in the kitty to cover the deductible on the insurance were anything terrible to happen. I have a 401k, also funded to the maximum allowed, with my contributions split between BlackRock Lifepath 2040 (LIKIX) and a Vanguard Small Cap index (VSCIX), and we own two rental properties that generate a little income. My employer contributes to my HSA as well.

What's the general guidance on how to best allocate money in an HSA? I don't want to put it all on the line, but don't want to miss out either.

  • Anecdote: I keep enough for a full year 's maximum liability (deductible plus the x% up to max) in the account and the rest in investment. Nitpick: the sweep is actually required to"stage"your investment transactions, but it's inconsequential really Apr 22, 2014 at 0:28
  • It's relevant to note that I'm young and expect any major health care costs to be an emergency Apr 22, 2014 at 0:29
  • Does your employer offer any contributions to your HSA? If they're giving even $50 a month then that covers your routine expenses.
    – NL7
    Apr 22, 2014 at 14:12

1 Answer 1


If you have retirement savings, the HSA should not be considered in isolation, but as part of your complete asset allocation.

The HSA is a unique account in that the funds go in pre-tax, grow tax free, and then for qualified expenses, are withdrawn tax free. With healthcare being the biggest risk to one's retirement portfolio (i.e. a large unknown in that retirement budget), funding an HSA to the max, and treating it as a long term investment makes a lot of sense.

As a comment suggests, keeping what you feel is a year's worth of expenses liquid might make sense. The (medical) plan coverage should have a maximum out of pocket each year. That's another number you can use as a guideline.

The question is great, and as more people have the high deductible plan with an HSA, it's worth some analysis. The problem for those answering is that we don't know the rest of your situation. Specifically, how these funds fit into your portfolio of assets.

  • Thanks for the reply Joe. I've added more detail on the rest of our asset portfolio. I hope that gives a better picture of my situation.
    – Justin R.
    Apr 23, 2014 at 20:22
  • This answer doesn't seem right to me. HSA funds are not fungible with other retirement savings. The tax rules on withdrawal are very different.
    – Alex R
    Aug 1, 2020 at 19:17
  • "The (medical) plan coverage should have a maximum out of pocket each year. That's another number you can use as a guideline." - Long term, a healthy person need not keep their HSA 100% liquid. I thought I covered that pretty well in this answer. Aug 1, 2020 at 19:21
  • Maximum out of pocket can be misleading, because it only applies to in-network care which typically means cheapest available provider and not necessarily the most qualified or most convenient. I agree 100% liquid is wrong unless the balance is tiny. I'm thinking 30/70 is the answer for a growing HSA so that the balance can meet future large expenses (denied claims, better provider out of network, etc), while also not being so risky that a surprise expense could deplete the balance during a low swing in the markets. Beware I'm not an expert, came here looking for answers.
    – Alex R
    Aug 1, 2020 at 19:45
  • Understood. Each person’s situation would dictate a different mix. One might have an emergency fund so robust they invest their HSA 100% right till retiring. Others use it up every year. My answer was, in hindsight, middle of the road. Whatever the maximum out of pocket might be. And that assumes the account has been accumulating for some time, meaning other money has been funding small expenses and copays. Aug 1, 2020 at 19:59

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