Juice your growth and save on taxes in this workplace investment account

It's open enrollment season at work, meaning employees are set to choose their healthcare benefits for 2027.

The Details

Healthcare costs have been climbing for workers and employers alike, with total family premiums averaging $28,303, including the employer's share, according to KFF.

Health savings accounts offer a tax-advantaged way to save for medical expenses and stash away money for the long term.

Alvaro Gonzalez | Moment | Getty Images

Workers are in the heart of open enrollment season for next year's benefits, and rising healthcare costs are shining a spotlight on an offering that includes a tax-advantaged investment account.

Healthcare expenses are climbing for workers and employers alike, with average total family premiums, including the employer's share, averaging $28,303, up 5% from a year ago, according to data from health policy organization KFF, formerly the Kaiser Family Foundation.

To manage the costs, a growing number of employers are moving to high-deductible health plans, which work alongside health savings accounts or HSAs. Almost 40% of companies with at least 10 employees that offer health benefits also have an HSA-qualified plan, KFF found.

Health savings accounts have three major tax advantages. First, contributions that your employer automatically deducts from your pay aren't taxed. Second, money stashed into the HSA grows free of taxes. Finally, you can make tax-free withdrawals for qualified health expenses – just be sure to save your receipts.

"I love HSAs because of their triple-tax advantage," said Eileen Olson, CFP and founder of Emerald Wealth in Daufuskie Island, South Carolina, near Savannah, Georgia. "For people who can afford to leave it alone, it can be one of the best retirement accounts they're going to have."

Money for the long run

In 2027, those with individual healthcare coverage through a high-deductible plan can stash up to $4,500 in an HSA, including any contributions from employers. That number goes up to $9,000 for family plans. Individuals can kick in a catch-up contribution of $1,000 if they're aged 55 and older and not enrolled in Medicare.

The HSA differs from the healthcare flexible spending account, known as the FSA.

FSA funds must be used by the end of the plan year unless your employer allows a carryover of up to $700 or an additional 2.5 months to use the money. HSAs, however, have no expiration date on their funds – and that's what makes them such a powerful tool for long-term planning. You can also take the HSA with you if you change employers.

"Get the money deployed, take advantage of the pretax contribution, and allocate the money into a growth portfolio," said Mark Stancato, certified financial planner at VIP Wealth Advisors in Decatur, Georgia. "With the HSA, you can keep compounding year over year."

Optimizing your account

The structure of an HSA and the available investment menu will vary from one plan to the next, and some will require that employees keep some of their holdings in cash.

Preset HSA fund menus tend to have 15 to 25 funds to choose from, and providers say that accountholders who invest tend to use two to four funds, according to Greg Carlson, senior research analyst for equity strategies at Morningstar.

How you allocate your HSA will depend on several factors, including your family's health prospects in the next year, your cash flow needs – how much you can comfortably sock into the HSA – and your risk tolerance, said André Small, CFP and founder of A Small Investment in Houston.

Health savings accounts contributions and plan info for 2027 Category Self-only coverage Family coverage Annual contribution limit $4,500 $9,000 Catch-up contribution (age 55+)

• $1,000
• $1,000
• Annual high-deductible plan deductible limit
• No less than $1,750
• No less than $3,500
• Annual out-of-pocket expenses
• No more than $8,700
• No more than $17,400
• Source:
• Internal Revenue Service

Small's standard is to keep an amount equal to 120% of the plan's out-of-pocket maximum held in cash in the HSA.

"That covers a bad year without forcing a sale at the wrong time," he said. "Above that amount? I typically advise investing the amount the client is comfortable investing, allocated to their risk tolerance, their time horizon and the goal of spending these dollars on care later."

For 2027, the IRS defines a high-deductible plan as one with an annual deductible no less than $1,750 for self-only coverage ($3,500 for family plans) and with an out-of-pocket expense limit that doesn't exceed $8,700 for self-only (or $17,400 for family coverage). Out-of-pocket expenses include deductibles, copays and other costs – but not premiums.

Growth oriented

Other advisors suggest having up to the deductible in cash, though some HSA plan providers require a stated minimum amount in cash.

Beyond this cash reserve, financial advisors recommend allocating into stocks.

Patrick Swift, CFP and president of Amplius Wealth Advisors in Blue Bell, Pennsylvania, aims for an allocation of up to 60% in U.S. large cap stocks, 20% in small and mid-cap stocks and 20% in international stocks.

"We believe the equity portfolio should be well diversified," he said. "If the [HSA] balance is 2% to 10% of your net worth, why not be aggressive? That can change based on the situation, but if you are comfortable with the philosophical aspect, why not be growth oriented?"

Similarly, Stancato likes to go heavy on equity exposure in HSA accounts. "I allocate more dollars into small caps and emerging markets – those asset classes with more volatility but also more opportunity for growth," the advisor said. He also adds some large-cap domestic exposure.

For the adventurous, select HSA providers are offering brokerage window access, meaning investors can pick from a broader array of investments, including individual stocks.

This year, seven providers surveyed by Morningstar offer access to brokerage windows – up from four in 2023 – including HealthEquity, Fidelity and Lively. Be aware that there may be annual fees attached, either a flat dollar amount or a percentage of assets.

Rachel Elson, a CFP and wealth advisor at Perigon Wealth Management in San Francisco, recommends keeping things simple. "You can do a three-ETF model, covering some allocation that includes the U.S. market, and two ETFs for developed and emerging markets."

"You don't need to get super complicated here," she added.

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