Charles Schwab is perhaps best known for its various investment accounts. It’s one of America’s greatest pioneers and providers of brokerage and retirement accounts—and it has been for decades.
But even if you don’t invest using a Schwab account, Schwab can still help you build 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. These securities appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Can You Invest Through Your HSA?
Health savings accounts (HSAs) can best be described as part cash account, part investment account. While the money is primarily intended to be spent on qualified medical expenses, you can invest some or all of it—and many people (myself included) do.
While many HSA providers offer several investment options, you’ll often need 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; but some providers don’t have this requirement.
How to Invest in Your HSA
As far as how to invest is concerned, that’s largely dependent on the investments your HSA provider offers, which can vary widely.
Some HSAs are self-directed and let you 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. Even then, the process is pretty simple—just select which fund or funds you want to purchase with your available 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?
Before you invest and put your retirement savings to work in a health savings account, you need to consider a few critical factors:
- 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.
- 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 income interest won’t be taxed) and actively managed stock funds (where the capital gains distributions from heavy trading won’t be taxed).
- Income: Finally, you ideally want your retirement portfolio to produce regular interest and dividend income. 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.
Related: Best Schwab Retirement Funds for an IRA
Why Schwab?
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.
The firm is the largest publicly traded investment services firm with more than $6 trillion in assets under management (AUM). Schwab 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.
On the product side, Schwab features more than 100 different funds boasting more than $870 billion in AUM. Schwab’s funds feature no load or transaction fees—which is advantageous in HSAs, IRAs, and taxable brokerages—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 2025
I’m splitting this list 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.
- People treating their HSA as a second IRA. They’re looking for some long-term growth, and they’re willing to accept some—not a lot, but some—risk.
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 U.S. Aggregate Bond Index Fund
- Style: U.S. intermediate-term bond
- Management: Index
- Assets under management: $5.3 billion
- SEC yield: 4.5%*
- Expense ratio: 0.04%, or 40¢ per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 20 (Conservative)
Bonds should be a core holding of just about any portfolio. They 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.
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.
The Schwab U.S. Aggregate Bond Index Fund (SWAGX) is a diversified option that covers a wide swath of the bond market.
SWAGX, which holds more than 10,500 debt issues, offers broad exposure to the bond market. Currently, 44% of the portfolio is invested in American government debt, another 25% is in MBSes, and 24% is invested in corporate bonds, with the remainder invested in modest positions in foreign government debt, municipal bonds, and other holdings.
SWAGX is diversified across the yield curve, with maturities ranging from less than a year to over 20 years. Overall, the fund has a duration of 6.1 years. So, the fund has moderate interest-rate risk. A rise in interest rates of 1% would mean a price decline of about 6%. But remember: This cuts both ways—a fall in interest rates could mean significant capital gains. (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.)
* 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 SWAGX? Check out the Schwab provider site.
Earn Money on Health Savings Fund #2: Schwab Monthly Income Income Payout Fund
- Style: Conservative allocation
- Management: Active
- Assets under management: $55.8 million
- SEC yield: 5.2%
- Expense ratio: 0.21%, or $2.10 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 22 (Conservative)
“Allocation” or “balanced” funds hold a combination of stocks and bonds. The aforementioned target-date funds are one kind of spin on this fund—one that follows a glide path over time to determine the percentage of stocks and bonds it will carry.
But a traditional allocation fund will have a set range it likes to operate within, and it will largely stay within that range over time.
That’s what you get with Schwab Monthly Income Income Payout Fund (SWLRX), a fund named in such a way that you could never forget its primary goal: income.
SWLRX is a “conservative” allocation fund that invests in a variety of mutual funds and ETFs with the goal of delivering certain levels 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%.
Currently, Schwab Monthly Income Income Payout (it’s fun to say!) has a 65/35 bond/stock split, which it accomplishes through holdings in about a dozen funds, including aforementioned SWAGX, as well as Schwab U.S. Dividend Equity ETF (SCHD), Schwab International Dividend Equity ETF (SCHY). Importantly, though, SWLRX doesn’t restrict itself to Schwab funds—it also owns Cohen & Steer Preferred Securities and Income Fund (CPXIX) and BlackRock High Yield Fund (BRHYX), among others.
And, as the name also suggests, its high 5%-plus yield is paid out in monthly distributions, which is particularly helpful for people seeking retirement income to match the frequency of their bills.
Want to learn more about SWLRX? Check out the Schwab provider site.
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: 0.26%-0.59%, or $2.60-$5.90 per year for every $1,000 invested; Schwab Target Index Funds: 0.08%, or 80¢ for every $1,000 invested
- Minimum initial investment: None
- Morningstar Portfolio Risk Score: 25-66 (Moderate to aggressive)
One of the challenges in retirement planning is getting the asset allocation right, or having an asset class mix that is appropriate for an investor at your age and stage of life. An ideal portfolio for a 20-year-old is likely going to be very different from that of a 40-year-old, and both those portfolios will be different from what’s ideal for a 60-year-old.
That’s where target-date funds can really add value.
Target-date funds—also called life-cycle funds—are a type of mutual fund that are designed to change their asset allocation over time. Target-date funds 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.
Also worth noting is that Schwab Target Index Funds, despite the name, do have human managers: currently, they are Zifan Tang, Patrick Kwok and Drew Hayes.
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: $538.2 million
- Dividend yield: 1.8%
- Expense ratio: 0.88%, or $8.80 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 69 (Aggressive)
Qualified dividends, as we mentioned above, are taxed at the same lower rates as long-term capital gains. This is by design.
Dividends were previously 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. SWDSX includes some traditional higher-than-average yielders among its largest holdings, including JPMorgan Chase (JPM) and Big Oil titans Exxon Mobil (XOM) and Chevron (CVX). 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 like Microsoft, which is the fund’s third-largest holding.
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: Best Fidelity Funds to Hold in an HSA
HSA-as-an-IRA Fund #2: Schwab S&P 500 Index Fund
- Style: U.S. large-cap stock
- Management: Index
- Assets under management: $93.1 billion
- Dividend yield: 1.4%
- Expense ratio: 0.02%, or 20¢ per year for every $10,000 invested
- Morningstar Portfolio Risk Score: 73 (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, roughly 85% of actively managed large-cap funds have failed to beat the S&P 500 across the trailing 10-year period.
So if you can’t beat it, 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%. It’s harder to get much closer to free than that.
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 $20.5 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: $288.1 million
- Dividend yield: 3.3%
- Expense ratio: 0.71%, or $7.10 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 74 (Aggressive)
Real estate has been a preferred asset class since the dawn of human civilization. And today, real estate investment trusts (REITs) offer the potential for both high yield and respectable capital gains.
REITs 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.
The problem? 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 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 bracket. Thus, it makes more sense to hold REITs and REIT funds in a tax-advantaged fund such as an HSA rather than a taxable brokerage account.
Schwab investors looking for real estate exposure could consider the Schwab Global Real Estate Fund (SWASX). The fund is a diversified REIT fund with a global presence. Approximately 60% of the fund is invested in American REITs, with the rest scattered across Europe, Asia, Australia, and Canada. The portfolio has minimal exposure to the office sector, which has been affected by work-from-home policies, and is 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 3.3% current yield is mighty competitive in a world in which the S&P 500 yields only 1.2%.
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 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: $634.7 million
- Dividend yield: 0.2%
- Expense ratio: 1.09%, or $10.90 per year for every $1,000 invested
- Morningstar Portfolio Risk Score: 83 (Very Aggressive)
An old Wall Street maxim says “you never go broke taking a profit.” There is a lot of wisdom in that quote. 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 370-stock portfolio has a turnover of 106%, effectively meaning that each year, on average, the entire portfolio turns over (and then a little more on top).
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 9.9% since inception, and that’s not too shabby. 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
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)?
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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 2024, deductibles with an HDHP are at least $1,600 for self-only coverage ($1,650 in 2025) or $3,200 for family coverage ($3,300 in 2025), 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.
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.
