Charles Schwab is perhaps best known among individual investors for providing brokerage and retirement accounts. Indeed, it’s one of America’s largest discount brokerage firms, and it has been for decades.
But this story isn’t limited to people who have money stored with “Chuck.”
Even if you don’t invest using a Schwab account, Schwab can still help you grow your nest egg. That’s because Schwab also offers some of the largest and most cost-efficient retirement funds you can find. And what better way to put those retirement funds to use than in a health savings account (HSA)—a supremely tax-advantaged account that can double as a retirement plan?
Let me introduce you to a handful of these Schwab mutual funds—each of which is inexpensive, effective, and sport long-term investing objectives. These funds have been chosen for their suitability in tax-advantaged plans, making them perfect for holding within HSAs. But if you don’t have an HSA, they’re also tax-smart choices in IRAs and (when available) 401(k)s.
Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Table of Contents
Can You Invest Through Your HSA?
Health savings accounts (HSAs) can best be described as a “hybrid” vehicle. It’s part-cash account, part-investment account.
When HSAs were created, the primary intent was for accountholders to spend their tax-advantaged funds on qualified medical expenses (hence the name “health savings account”). But you can invest some or all of your HSA funds, and many people (myself included) do.
While many HSA providers offer several investment options, you may have to meet a minimum balance in your account before you can start investing. For instance, some HSA administrators might require you to have at least $2,500 in your cash account before you can invest. If you don’t have a requirement, all the better.
How to Invest in Your HSA
How you’re able to invest is largely dependent on what your HSA provider allows. And that can vary pretty widely. (We’ll cover our top Schwab retirement picks for your HSA account momentarily.)
Some HSAs are self-directed, allowing you to choose from thousands of stocks, bonds, exchange-traded funds (ETFs), and mutual funds. In that case, how you invest is just about the same as how you’d invest in a traditional brokerage account or individual retirement account (IRA). However, other HSAs might require you to choose from a very limited set of mutual funds or ETFs, similar to how 401(k)s only allow you to choose from a handful of funds.
If you have a high-deductible health care plan (HDHP) and are eligible for an HSA, research different HSA providers and their investment choices to determine which investments are available to you.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
What Should You Want in a Retirement Fund?
Are you ready to invest your retirement savings and put that money to work in mutual funds? That’s good. Now, you’ll want to consider these critical factors:
- Costs: Every dollar spent on fees and expenses is a dollar no longer available to grow and compound over time, so keeping expenses cut to the bone is vital. Good news there: The best Schwab retirement funds will generally have some of the lowest fees and expenses in the business.
- Taxes: A taxable account (like a standard brokerage account) is better suited to take advantage of certain tax-advantaged investments, such as municipal bonds. For tax-advantaged accounts, such as HSAs, some of the best investments include bond funds (where the interest income won’t be taxed) and actively managed stock funds (where the capital gains distributions from heavy trading won’t be taxed).
- Income: You might want your portfolio to produce not just capital gains, but regular interest and dividend income, especially if you’re approaching retirement. Stocks can regularly experience nasty corrections and bear markets, but a few good income funds can help provide for your living expenses without forcing you to sell at an inopportune time.
- Diversification: A robust retirement portfolio should provide diversification across various asset classes. This typically means stocks and bonds, which you can easily access through Schwab or other investment funds. This can also mean alternative assets such as real estate or commodities. Diversifying your retirement portfolio across these asset classes can help defray your risk and smooth your returns. (Also, pay attention to diversification within the fund itself. Some funds might have extremely concentrated positions in a handful of holdings, while others might spread their assets in such a way that no one stock will really dictate the direction of the fund. Both strategies have their merits and risks.
Related: Best Schwab Retirement Funds for an IRA
Why Buy Schwab Funds?
Charles Schwab is a U.S.-based brokerage and banking company founded in 1971 as a traditional brokerage company and then as a discount brokerage service in 1974. It is headquartered in San Francisco, California, and operates primarily throughout the United States, but also has international operations.
Schwab is the largest publicly traded investment services firm; as of early 2026, it boasted $12 trillion in assets under management (AUM). It offers a wide range of financial services, such as investment advice and management, trading services, financial planning, banking services, workplace and individual retirement plans, annuities, and more.
Schwab’s currently offers more than 100 funds. And most of those feature no sales charges (“loads”) or transaction fees—which is advantageous in HSAs, IRAs, and taxable brokerages alike—and below-industry-average expenses. Schwab offers actively managed funds run by seasoned teams, but it’s also one of the largest providers of indexed mutual funds.
In short: Schwab’s best mutual funds for retirement are generally going to be among your top options period, and they generally won’t make a dent in your wallet.
Related: 7 Best Schwab Index Funds for Thrifty Investors
The Best Schwab Retirement Funds for an HSA in 2026
The following list is split into needs for two types of investors:
- People who just want to earn a little money on their health savings. These people plan on using their HSA for health-related expenses, but would like to make at least a little money while those funds are just sitting around. They don’t want a high level of risk; they’re more concerned with the money being there when they need it.
- People treating their HSA as a second IRA. They’re looking for some long-term growth. These investors are willing to accept more risk because their investment goal is much farther down the road.
Also note that these Schwab retirement funds are ordered by their Morningstar Portfolio Risk Score for the trailing 10-year period. Here are the risk levels each score range represents:
- 0-23: Conservative
- 24-47: Moderate
- 48-78: Aggressive
- 79-99: Very aggressive
- 100+: Extreme
These scores are a general gauge of risk compared to all other investments. For example, a bond fund with a score of 20 might be considered a conservative strategy overall, but it could simultaneously be riskier than a number of other bond funds.
Lastly, these funds have an extremely low minimum of just $1 to invest. That provides an amazing amount of financial flexibility and accessibility that most other fund families simply don’t offer.
With all that out of the way, let’s dig into some of the best Schwab retirement funds to hold in an HSA.
Earn Money on Health Savings Fund #1: Schwab Short-Term Bond Index Fund
- Style: U.S. short-term bond
- Management: Index
- Assets under management: $1.7 billion
- SEC yield: 3.7%*
- Expense ratio: 0.06%, or 60¢ per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 7 (Conservative)
Bonds are a core holding in just about every portfolio, though you’ll typically own more of them the older you are.
However, bonds also happen to be one of the most tax-inefficient asset classes on earth because the bulk of their returns will generally come from interest paid, and interest income is taxed as ordinary income. If you’re in the 37% tax bracket, then you’re losing 37% of your bond interest to taxes. And for this reason, it will virtually always make sense to hold bonds and bond funds in an HSA, IRA, 401(k), or other tax-deferred account.
Schwab Short-Term Bond Index Fund (SWSBX) is among the lower-risk options in the Schwab arsenal. Nearly 70% of the 3,000-bond portfolio is invested in U.S. Treasuries and other government securities, a quarter is in high-quality corporate short-term bonds, and the remaining sliver is in foreign government bonds.
To be clear: Short-term bonds don’t always make sense for investors, depending on the rate environment.
Right now, for instance, short-term bonds still offer relatively high yields for relatively low risk. Moreover, while the Federal Reserve has been lowering its benchmark interest rate in the second half of 2025, it hasn’t affected all bonds equally. Long-term rates haven’t lost as much ground thanks to worries about both inflation and a still-growing deficit. And any additional reductions in the federal funds rate (the overnight lending rate used by banks) will likely have a more positive impact on the price of shorter-term bonds.
Let’s go back to SWSBX. Duration—a measure of interest-rate risk—is 2.6 years. In theory, this means a 1-percentage-point rise in market interest rates would result in a short-term price decline of 2.6% for Schwab’s fund. However, this cuts both ways: A decline in rates could mean a rise of 2.6%. (The actual calculation of duration is fairly complex; it’s the weighted average of the bond’s cash flows. But the key takeaway is that, all else equal, the longer a bond’s time to maturity, the higher its duration—and thus the higher the interest-rate risk.)
In short, Schwab Short-Term Bond Index Fund doesn’t have a ton of upside in the event of a Fed cut, but it also doesn’t have much to lose in the event the central bank raises its target rate. Meanwhile, you’re collecting nearly 4%. That makes SWSBX one of the best Schwab funds to hold in an HSA if you’re just looking to earn a little on a balance you plan to spend in the coming years.
* SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.
Want to learn more about SWSBX? Check out the Schwab provider site.
Earn Money on Health Savings Fund #2: Schwab Monthly Income Fund – Income Payout
- Style: Conservative allocation
- Management: Active
- Assets under management: $72.7 million
- SEC yield: 4.3%
- Expense ratio: 0.16%*, or $1.60 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 24 (Moderate)
I love a fund that lets you know what it owns, and with a name like Schwab Monthly Income Fund – Income Payout (SWLRX), you won’t forget it.
SWLRX is an allocation fund (aka balanced fund), which is just the term for any fund that owns a combination of stocks and bonds. A traditional allocation fund will typically target a specific ratio of stocks and bonds and stay relatively close to that.
In this case, we’re looking at a conservative allocation of 70% bonds and 30% stocks, which it accomplishes through holdings in about a dozen mutual funds and ETFs. That includes Schwab’s broad bond product, the Schwab U.S. Aggregate Bond Index Fund (SWAGX), as well as Schwab U.S. Dividend Equity ETF (SCHD), and Schwab International Dividend Equity ETF (SCHY), among others.
Importantly, SWLRX doesn’t restrict itself to Schwab products—for instance, it also owns Cohen & Steer Preferred Securities and Income Fund (CPXIX) and T. Rowe Price Institutional Floating Rate Fund (RPIFX).
Schwab Monthly Income Fund – Income Payout (I’m begging the marketers to work on this name) has a goal of delivering a certain level of payout depending on the interest-rate environment. Specifically, it should pay 0%-3% amid low interest rates, 3%-5% amid normal interest rates, and 5% or more amid high interest rates. And it will do so through shifting allocations—specifically, it can adjust its equity allocation to between 10% and 50%, fixed income to between 50% and 90%, and cash and cash equivalents to between 0% and 12%. So right now it’s roughly in the middle of those ranges.
As the name also suggests, SWLRX’s high yield of more than 4% is paid out in monthly distributions, which is particularly helpful for people seeking retirement income to match the frequency of their bills. And while risk is considered “moderate” by score, it’s at the very bottom of that range, bordering on “conservative.”
* 0.30% gross expense ratio is reduced with a 14-basis-point fee waiver (a basis point is one one-hundredth of a percentage point) for so long as Schwab Asset Management serves as the adviser to this fund. The agreement can only be amended or terminated with the approval of the fund’s board of trustees.
Want to learn more about SWLRX? Check out the Schwab provider site.
Make Young and the Invested your preferred news source on Google
Simply go to your preferences page and select the ✓ box for Young and the Invested. Once you’ve made this update, you’ll see Young and the Invested show up more often in Google’s “Top Stories” feed, as well as in a dedicated “From Your Sources” section on Google’s search results page.
Related: 9 Best Schwab Funds You Can Buy: Low Fees, Low Minimums
Earn Money on Health Savings Fund #3: Schwab Target-Date Funds
- Style: Target-date
- Expense ratio: Schwab Target Funds: 0.25%-0.58%*, or $2.50-$5.80 per year for every $1,000 invested; Schwab Target Index Funds: 0.08%*, or 80¢ per year for every $1,000 invested
- Minimum initial investment: None
- Morningstar Portfolio Risk Score: 26-67 (Moderate to aggressive)
Allocation funds like the aforementioned SWLRX are really helpful if you know how you want your assets allocated, and you know you’ll want that allocation for some time to come. But a challenge in retirement planning is ensuring not just that you get your asset allocation right to start with, but that your asset-class mix is always appropriate for an investor at your age and stage of life.
After all, the ideal portfolio for a 20-year-old will likely be very different from that of a 40-year-old, and both those portfolios will be different from what’s optimal for a 60-year-old.
This is where target-date funds (TDFs) can really add value. TDFs (also called life-cycle funds) are a type of mutual fund that are designed to change their asset allocation over time. They start out invested heavily in stocks, then slowly reduce their stock exposure and replace it with bond exposure as they approach their target retirement date, following a “glide path.”
The target retirement dates are intended to be estimates; they don’t have to be super precise. Generally, most mutual fund families will create target-date funds in five-year increments (say, 2025, 2030, 2035, etc.). Given the hyper-specific focus on retirement, target-date funds tend to be a mainstay of 401(k) plans, but they also have a place in other tax-deferred accounts, including HSAs and IRAs.
Schwab offers two target-date fund series, both of which hold various funds to provide exposure to U.S. and international stocks and bonds:
- Schwab Target Funds: These hold a collection of actively managed and index funds. While most of Schwab Target Funds’ holdings are other Schwab mutual funds, they will also hold funds from outside providers, including Dodge & Cox and Baird.
- Schwab Target Index Funds: These primarily hold Schwab ETFs.
In general, both of Schwab’s target-date fund series are economical, but the Schwab Target Index Funds are flat-out cheap, at just 0.08% in annual expenses. And at least as far as Morningstar Medalist ratings go, the Target Index series is considered the better of the two, earning a Bronze rating.
Schwab’s target-date funds span a wide range of risk; generally speaking, the farther out the fund’s date, the more stocks it will own (and thus the more aggressive it will be), so only nearer-dated TDFs are truly appropriate for those treating their HSA more like a savings fund.
Also worth noting is that Schwab Target Index Funds, despite the name, do have human managers: currently, they are Zifan Tang and Patrick Kwok.
* Schwab Target Funds and Schwab Target Index Funds have temporary fee waivers to limit operating expenses. These waivers will remain as long as Schwab Asset Management serves as the adviser to the funds. The agreement can only be amended or terminated with the approval of the fund’s board of trustees.
Want to learn more about Schwab’s target-date funds? Check out the Schwab provider site.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
HSA-as-an-IRA Fund #1: Schwab Dividend Equity Fund
- Style: U.S. large-cap dividend stock
- Management: Active
- Assets under management: $631.5 million
- Dividend yield: 1.6%
- Expense ratio: 0.89%, or $8.90 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 60 (Aggressive)
Dividends were once taxed like bond interest, as ordinary income. But following the tech bust of 2000-02, the Bush administration changed the tax laws in an attempt to encourage more responsible behavior from both investors and the companies they invest in. The thinking was that lowering the tax on dividends would encourage more companies to pay dividends and encourage more investors to take a long-term investor mindset as opposed to a short-term gambler mindset.
It was a godsend for income investors, but let’s be clear: Dividend stocks are still woefully tax-inefficient. Long-term capital gains remain unrealized—and thus not taxable—until you sell, whereas dividends are still taxed when they are received … even if at a lower rate than in decades past.
For this reason, it’s generally going to make sense to keep dividend stocks and dividend funds in a tax-deferred retirement account. And one worthy contender is the Schwab Dividend Equity Fund (SWDSX).
Managers Wei Li, Bill McMahon, and James Serhant aim to hold dividend stocks but produce less risk than the Russell 1000 Value Index. The portfolio includes traditional higher-than-average yielders such as JPMorgan Chase (JPM), Morgan Stanley (MS), and Walmart (WMT). But while the fund might have a dividend focus, that doesn’t mean that it’s a stodgy widows-and-orphans investment. SWDSX is full of quality blue-chip stocks with a history of consistently paying dividends, including growth names such as Broadcom (AVGO) and Microsoft (MSFT).
If you’re looking for a good collection of dividend-paying workhorses that you can own for the long term, Schwab Dividend Equity is a worthy addition to your HSA portfolio.
Want to learn more about SWDSX? Check out the Schwab provider site.
Related: 7 Best High-Yield Dividend ETFs for Income-Hungry Investors
HSA-as-an-IRA Fund #2: Schwab S&P 500 Index Fund
- Style: U.S. large-cap stock
- Management: Index
- Assets under management: $133.6 billion
- Dividend yield: 1.1%
- Expense ratio: 0.02%, or 20¢ per year for every $10,000 invested
- Morningstar Portfolio Risk Score: 74 (Aggressive)
If we’re talking about tax consequences alone, a taxable account is much better positioned to take advantage of an index fund’s tax efficiency than a tax-advantaged account. But if you’re looking to get growth out of your HSA, it might make sense to hold an S&P 500 index fund—even if you’re not maximizing your tax benefits that way.
The vast majority of fund managers who run large-cap funds (funds that invest in larger companies) struggle to consistently beat the S&P 500 Index, particularly after fees. According to S&P Dow Jones Indices’ SPIVA (S&P Indices versus Active) data, 86% of actively managed large-cap funds have failed to beat the S&P 500 across the trailing 10-year period, and that number climbs to 88% when looking at the past 15 years.
“I know guys that rate active managers in all these categories, and even they’re like, ‘I’m not buying actively managed large blend; I’m just indexing,'” says Daniel Sotiroff, Senior Analyst for ETF and Passive Strategies at Morningstar. “Because it’s so brutally tough to beat a dirt-cheap index fund in the large blend category.”
If even seasoned professionals can’t beat it, we might as well join it.
The Schwab S&P 500 Index Fund (SWPPX) isn’t just a cheap way to get access to the S&P 500—it’s one of the cheapest ways across both mutual funds and ETFs alike, charging a razor-thin expense ratio of just 0.02%. That’s not free, but it’s awfully darn close. Indeed, it undercuts the vast majority of S&P 500 “trackers” on price.
The S&P 500 is a collection of the largest and most dominant American companies. To be selected for this stock market index, a company must have a market capitalization of at least $22.7 billion, its shares must be highly liquid (shares are frequently bought and sold), at least 50% of its outstanding shares must be available for public trading, it must have positive earnings in the most recent quarter, and the sum of its previous four quarters must be positive. Once a company is in the index, it doesn’t necessarily get kicked out if it fails to meet all of the criteria at some point in the future, but the selection committee would take that under consideration.
Turnover (how much the fund tends to buy and sell holdings) tends to be low, as only a handful of stocks enter or leave the index in any given year. This makes SWPPX an extremely tax-efficient option for taxable investment accounts. But there’s nothing wrong with holding SWPPX in an HSA, either—sure, you won’t enjoy a premium tax edge, but you’ll be putting your money into one of Schwab’s best retirement funds.
Want to learn more about SWPPX? Check out the Schwab provider site.
Related: Best Schwab Retirement Funds for a 401(k) Plan
HSA-as-an-IRA Fund #3: Schwab Global Real Estate Fund
- Style: Global real estate
- Management: Active
- Assets under management: $300.8 million
- Dividend yield: 3.0%
- Expense ratio: 0.72%, or $7.20 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 76 (Aggressive)
Outside of stocks and bonds, there are “alternative” assets such as commodities, cryptocurrency, and the focus of our next fund: real estate.
Owning physical real estate is prohibitively too expensive for the average investor; most of us don’t have hundreds of thousands (if not millions) of dollars just laying around. We can solve that problem by owning real estate investment trusts (REITs), which are arguably the most accessible type of real estate investment around.
Publicly traded REITs, which you can buy and sell like traditional stocks, allow us to own a part of large portfolios of real estate while enjoying the potential for both high income and respectable capital gains. You see, REITs also enjoy a special tax status that allows them to avoid corporate taxation so long as they distribute at least 90% of their net profits as dividends. Because of this tax incentive, REITs tend to be one of the highest-yielding sectors and a perennial favorite among income investors.
But if you’re going to own REITs and REIT funds, it helps to own them in a tax-advantaged fund such as an HSA rather than a taxable brokerage account. That’s because a large percentage of the total return comes from taxable dividends, which makes REITs very tax-inefficient. What’s more, REIT dividends are generally not classified as “qualified dividends.” Qualified dividends, like what you get from “normal” stocks and stock funds, are taxed at the long-term capital gains rate (0%, 15% or 20% depending on your tax bracket). Non-qualified dividends are taxed as ordinary income, like bond interest, and can face rates as high as 37%, depending on your marginal tax bracket.
If you’re looking for real estate exposure in your HSA, you might consider the Schwab Global Real Estate Fund (SWASX): a diversified REIT fund with a global presence. Approximately 55% of the fund is invested in American REITs, with the rest scattered across Europe, Asia, Australia, and Canada. The portfolio covers a wide variety of real estate, though it’s most heavily allocated to diversified, retail, and industrial properties.
This is a growth-focused real estate fund that focuses on total return, including both capital gains and income. But its 3.0% current yield is mighty competitive in a world in which the S&P 500 yields just more than 1%.
Another reason to consider SWASX for your HSA? Turnover. When a fund trades its holdings throughout the year, it can sometimes generate capital gains. When those capital gains are passed along to you, you’re responsible for capital gains taxes … and active trading strategies are woefully tax-inefficient because they often pass along short-term capital gains, which are taxed as ordinary income at rates up to 37%.
There is no precise, universally accepted threshold for what constitutes “a lot” of active trading, but I would consider any fund with portfolio turnover over 30% or so to be fairly tax-inefficient. The aforementioned SWPPX? Pretty efficient at just 2% turnover. But the higher that number goes, the more inefficient the fund. Schwab Global Real Estate has annual turnover of about 85%, which means it could distribute a lot of short-term capital gains. Fortunately, you can avoid those immediate tax consequences in a tax-deferred account like an HSA.
Want to learn more about SWASX? Check out the Schwab provider site.
Related: Best Vanguard Funds to Hold in an HSA
HSA-as-an-IRA Fund #4: Schwab Small-Cap Equity Fund
- Style: U.S. small-cap stock
- Management: Active
- Assets under management: $687.1 million
- Dividend yield: 0.1%
- Expense ratio: 1.08%, or $10.80 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 87 (Very Aggressive)
As a general rule, buying and holding good stocks or good funds and allowing them to compound over years or even decades is the way to go. But having at least part of your portfolio in actively traded strategies can also make sense, particularly in bear markets. Actively traded strategies have their stretches when they outperform passive index strategies, and they can potentially help you to avoid major declines.
Unfortunately, as mentioned before, active trading strategies can be very tax-inefficient, and this phenomenon can be especially pronounced in the world of small-cap equities. Because smaller companies are often younger companies, the small-cap space tends to move quickly. Successful companies “graduate” to mid- or even large-cap status, and those that are unsuccessful often disappear altogether. This often results in a lot of holdings changes.
Case in point, check out Schwab Small Cap Equity Fund (SWSCX), managed by Wei Li, Iain Clayton, and Holly Emerson. Their 340-stock portfolio has a turnover of 108%, effectively meaning that each year, on average, the entire portfolio turns over … and then a little of that portfolio turns over, too.
It’s a diverse holding set with little single-stock risk. Just a handful of companies—including Enova International (ENVA) and Axos Financial (AX)—are “weighted” at more than 1%. (Weight is the percentage of assets allocated to a holding; the higher the weight, the more impact that holding has on portfolio performance.)
Small-cap stocks have lagged their large-cap peers in recent years, as the market has been dominated by the “Magnificent Seven” mega-cap stocks. Still, SWSCX has managed to return an annualized 10.3% since inception, and that’s nothing to sneeze at. Also, while the strategy itself is pretty aggressive compared to other strategies, among small-cap blend funds, it actually presents pretty average-level risk.
Want to learn more about SWSCX? Check out the Schwab provider site.
Is Investing Health Savings Account Funds a Good Idea?
Yes, it can be a good idea to invest the funds in your health savings account—after all, investing is generally the best way to grow wealth over time. But you should also keep at least a portion of your HSA balance saved as cash so you can still easily spend it if you need it.
For instance, I typically keep my estimated annual out-of-pocket expenses in the savings portion of my HSA and invest the remaining balance for long-term needs, such as medical expenses in retirement. This gives me added peace of mind that the money is available if we can’t afford to cover unexpected health care costs with our normal checking account.
Related: 9 Best Fidelity Index Funds to Buy for 2026
Why You Should Invest Your HSA Funds
Some people just aren’t in a financial position where they can invest their HSA funds. But if you are, there are oh-so-many reasons to put at least some of that HSA money to work.
1. Triple Tax Advantage
HSAs offer an impressive trifecta of potential tax benefits, including:
- Pre-tax contributions: Contributions to an HSA made via payroll deduction are pre-tax. Any contributions you make on your own (not via payroll deduction) may be 100% tax-deductible.
- Tax-free investment growth: Your HSA investment earnings and interest earned on the savings portion aren’t subject to taxes either.
- Tax-free withdrawals for qualified medical expenses: If you withdraw HSA dollars for a qualified medical expense, you won’t be taxed on the withdrawal.
You will pay income taxes and a 20% penalty on withdrawals for non-qualified costs before age 65. However, after age 65, while you’ll still have to pay ordinary income tax on non-qualified withdrawals, you’ll no longer have to pay any penalties.
2. Long-Term Growth
Chances are your health care expenses will probably rise as you age. If you have a high-deductible health plan and start investing in an HSA early, you can build a sizable nest egg for medical costs (or other expenses) in retirement. This will provide some assurance that your future health care costs will be covered even if they grow more expensive when you’re older.
3. Investment Options
Similar to what you’d see with a taxable brokerage account, HSAs sometimes offer numerous investment options, including individual stocks, bonds, certificates of deposit (CDs), funds, and more.
For instance, with a self-directed HSA, investors can allocate a portion of their investments to equities, fixed-income assets, exchange-traded funds (ETFs), and mutual funds. Some HSA administrators even support fractional share investing, which makes higher-priced shares more accessible for investors working with smaller dollar amounts.
Related: 6 Common HSA Mistakes to Avoid
Do I Qualify for a Health Savings Account (HSA)?
To be eligible for a health savings account, you’ll need to be enrolled in a qualifying high-deductible health plan (HDHP). If you enroll in a high-deductible health plan through your employer, you can open an HSA account through your employer if they also offer that, but if not, you can sign up for your own personal HSA account.
For 2026, deductibles with an HDHP are at least $1,700 for self-only coverage or $3,400 for family coverage, which can be a hefty sum to pay out of pocket. But pre-tax money saved in your HSA can be used to offset those costs and other qualified medical expenses.
Track Your Portfolio With Empower
- Available: Sign up here
- Price: Tools: Free. Wealth Management: Starts at 0.89% of assets annually.*
Empower is one of our top-rated financial services firms for people of any income level thanks to the quality and breadth of its offerings:
- Free financial tools: Empower’s free Personal Dashboard includes a host of useful tools, including a savings planner, retirement planner, financial calculators, and even a cost planner for your children’s education. But the tool that sets Empower apart is its Investment Checkup tool, which assesses portfolio risk, analyzes past performance, provides a target allocation for your portfolio, and lets you compare your portfolio to the S&P 500 and Empower’s “Smart Weighting” Recommendation.
- Fee-based wealth management services: Empower also offers several suites of advisory services depending on your investible assets. People with as little as $100,000 can get unlimited financial advice and retirement planning and a professionally managed portfolio. Clients with higher assets can access more services, including dedicated financial advisors, specialists in areas such as real estate and stock options, and even access to private equity.
Use our exclusive link to sign up for the Empower Personal Dashboard, whether that’s for the free tools or the advisory services. If you have $100,000 or more in investible assets, you’ll also be able to schedule a free initial 30-minute financial consultation with an Empower professional.
- Empower offers both a free set of portfolio, net worth, and cash flow tracking tools, as well as paid asset management service.
- Link Empower to your bank and investing accounts, credit cards, and more to see a single view of useful information and data, including your net worth.
- Empower Advisory Group offers a comprehensive wealth management service known as Personal Strategy. This managed account solution provides clients with discretionary investment management, personalized portfolio construction, and access to financial planning support. Accounts investing $100k to $250k receive unlimited advice and retirement planning help from financial advisors, as well as a professionally managed ETF portfolio with reviews upon request. Higher asset tiers offer access to dedicated advisors, estate planning, and tax specialists, plus additional investment options like access to private equity.**
- Special offer: If you have $100k+ in investible assets, sign up with our link to schedule a free initial 30-minute financial consultation with an Empower professional.
- Free portfolio tracker (Dashboard)
- Free net worth, cash flow, and investment reporting tools (Dashboard)
- Tax-loss harvesting (Personal Strategy)
- Dividend reinvestment (Personal Strategy)
- Automatic rebalancing (Personal Strategy)
- Low investment expense ratios (Personal Strategy)
- High number of investment accounts supported (Personal Strategy)
- High $100k minimum for investment management (Personal Strategy)
- Moderately high investment management fee (0.89% AUM) compared to other online advisors (Personal Strategy)
Schwab Funds for Retirement: Frequently Asked Questions (FAQs)
What is the minimum investment amount on Schwab mutual funds?
Schwab is one of the most friendly fund companies for beginners. That’s not just because both its mutual funds and ETFs sport below-industry-average expense ratios, but because you don’t need much money to invest in them in the first place. Most Schwab mutual funds have the barest of investment bare minimums—you can literally start with as little as $1.
That’s extremely beneficial in self-directed accounts like an HSA. Many mutual funds from other providers require high minimums in the thousands of dollars, hamstringing investors with little capital to work with.
Why does a fund’s expense ratio matter so much?
Every dollar you pay in expenses is a dollar that comes directly out of your returns. So, it is absolutely in your best interests to keep your expense ratios to an absolute minimum.
The expense ratio is the percentage of your investment lost each year to management fees, trading expenses and other fund expenses. Because index funds are passively managed and don’t have large staffs of portfolio managers and analysts to pay, they tend to have some of the lowest expense ratios of all mutual funds.
This matters because every dollar not lost to expenses is a dollar that is available to grow and compound. And over an investing lifetime, even a half a percent can have a huge impact. If you invest just $1,000 in a fund generating 5% per year after fees, over a 30-year horizon, it will grow to $4,116. However, if you invested $1,000 in the same fund, but it had an additional 50 basis points in fees (so it only generated 4.5% per year in returns), it would grow to only $3,584 over the same period.
Related: HSA Contribution Limits for 2026
Want to talk more about your financial goals or concerns? Our services include comprehensive financial planning, investment management, estate planning, taxes, and more! Schedule a call with Riley to discuss what you need, and what we can do for you.
