Introduction
We all have regrets when it comes to investing. Buying something stupid? Check. Waiting too long to invest in something? Check. Selling something too early and watching it subsequently go up another 400%? Absolutely.
I’ve been navigating the financial markets for roughly three decades now, and I like to think I’ve seen most of the shiny financial vehicles the system has to offer. But three years ago, I finally opened a Health Savings Account (HSA).
And my biggest regret? Not opening one back in 2004 when they first became available, which means I spent nearly two decades missing out on the closest thing the IRS will ever offer to a legal cheat code.
In this issue, I’ll discuss HSAs: how they work, the pros and cons, and a hack you can potentially use if you have a spouse with access to health insurance.
A quick reminder, because the lawyers told me to: this is not financial advice. I am not a fiduciary, a CPA, or even particularly good at assembling IKEA furniture. This is just me sharing my strategies, investments, stocks, index fund strategies, what I'm buying, and where I plan to take those investments. Everyone’s financial goals are different—some of you want a yacht, others just want to stop looking at your 401(k) statements. No financial decisions should be made solely on this newsletter, which is for informational and entertainment purposes only and is not a substitute for advice from a qualified professional who actually knows your situation and charges by the hour.
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What Exactly Is an HSA?
A Health Savings Account is a tax-advantaged account available to people enrolled in an HSA-eligible high-deductible health plan (HDHP). The basic idea is simple:
You put money in → invest it → use it for medical stuff → potentially never pay federal income tax on that money.
That’s pretty good. Actually, that’s really good. HSAs have something that makes them particularly attractive compared with many other retirement accounts: the triple-tax advantage.
Usually, Uncle Sam makes you pick your poison:
Traditional IRA / 401(k): You get a tax break now, but the IRS gets its beak wet when you cash out in retirement just trying to buy soup.
Roth IRA: You pay taxes now with your post-tax dollars, but future-you gets to take the gains out tax-free.
The HSA looks at that compromise, says “hold my beer”, and takes both tax breaks.
Tax-Deductible Contributions: Contributions are tax-deductible (or pre-tax if done through payroll), so you can potentially reduce your taxable income while putting money into the account.
Tax-Free Growth: You don’t leave it in cash yielding 0.01% while your bank buys yachts with your balance. You throw it straight into broad-market index funds or whatever investment options your HSA provider offers, where it compounds 100% tax-free.
Tax-Free Withdrawals: You pull the money out tax-free to cover health expenses.
No other account gives you all three. It’s the holy trinity of tax avoidance and completely legal.
While I personally haven’t taken any withdrawals yet, as I’d rather let the money sit there and compound, you don't have to wait until retirement to get the tax-free withdrawals like with a 401(k). You can use the money for qualified medical expenses right away. But I’ve let my HSA become another tax-free investment vehicle and I deal with current medical expenses using regular cash flow. Future me can thank current me. Future me will probably also complain about how expensive healthcare is.
More HSA “Pros”
I mentioned the major “pro” with an HSA account: it being triple-tax advantaged. There are some other major benefits:
The Money Is Yours: Unlike your employer's loyalty, the HSA belongs to you. Whether you change jobs, retire, or become self-employed, the HSA comes with you. It isn’t tied to your employer.
There’s No “Use It or Lose It”: This is one of the biggest differences between an HSA and a traditional FSA. If you don’t spend the money this year, it doesn’t disappear. It rolls over indefinitely. You could have $5,000 in your HSA today, contribute more next year, invest it, and potentially have a much larger balance decades from now.
You Can Invest the Money: This is the main reason I took advantage of this account. Many HSA providers allow you to invest your balance in mutual funds, ETFs, or other investment options. That means you don’t necessarily have to leave your HSA sitting in cash earning next to nothing. If you’re treating the HSA as a long-term account like I am, investing it can potentially make a huge difference.
I have my HSA split into my “two-fund portfolio to get rich” that I wrote about last year: 50% in the Vanguard S&P 500 ETF (VOO) and 50% in the Invesco QQQ Trust (QQQ, which mirrors the Nasdaq 100).It Can Become a Retirement Account: Once you turn 65, the 20% penalty for non-medical withdrawals magically vanishes. You can pull money out for anything - a jet ski, a trip to Vegas - and simply pay ordinary income tax on it, exactly like a 401(k). But if you use it for healthcare (which, let’s be honest, you will), it stays completely tax-free.
You Can Use It for More Than Your Own Medical Bills: Qualified medical expenses can generally include expenses for you, your spouse, and eligible dependents, subject to the rules. So your HSA isn’t necessarily limited to your own doctor’s appointments and prescriptions. It can be used for a variety of expenses, from contact lenses to dental treatment, hearing aids, and much more. The IRS has a full list of qualifying expenses at this link.
The "Delayed Receipt" Time-Travel Strategy: Here’s a hack that I use. Got a $400 dentist bill today? Pay it out-of-pocket using standard cash flow. Scan the receipt. Save it to a secure cloud drive (I explain how I do this in the “Cons” section below). Let that $400 sit in your HSA compounding in index funds for 20 years. In 2046, pull out $400 tax-free to "reimburse" yourself for that 2026 root canal, while keeping two decades worth of investment growth. You are essentially giving yourself a tax-free, interest-free loan from your past self.
💡 Practical Money Trivia
57% of employees choose the HSA-eligible health plan when they’re given a choice, according to the latest 2026 Plan Sponsor Council of America (PSCA) survey. However, only about 18% of HSA participants were investing their HSA balances. The remaining 82% are letting their money sit in low-yield cash options, completely missing out on long-term tax-free compounding.
Here We Go: The Cons
OK, enough glazing HSAs. There are some legitimate downsides, which is why it took me so long to finally open one:
You Need an HSA-Eligible Health Plan: You need to be covered by an HSA-eligible high-deductible health plan (HDHP) to contribute. You can’t simply walk into Fidelity, Schwab, or wherever and announce, “I’d like one HSA, please.” You have to actually be eligible. And HDHPs generally mean higher out-of-pocket costs before insurance starts picking up more of the tab.
High Deductibles Can Hurt: This is probably the biggest practical downside. HDHPs generally come with higher deductibles. If you’re someone who has significant medical expenses every year, a traditional health plan with a higher premium but lower out-of-pocket costs may make more financial sense. Don’t choose an HDHP solely because someone on the internet told you HSAs are awesome.
Run the numbers. Look at premiums. Look at deductibles. Look at out-of-pocket maximums. Look at expected medical expenses. Then decide what makes sense for your family. Because saving $1,000 in premiums isn’t particularly exciting if your family immediately spends $6,000 more out of pocket.
If you have a spouse who also has health insurance, there is a hack you can do, which I’ll get into in the next section.You Have to Keep Track of Expenses: If you’re using the HSA as a long-term investment account and planning to reimburse yourself years later, you need to keep documentation. You don’t want to be 67 years old trying to remember why you have a $742 charge from a dentist in 2028.
I personally have a Google Sheet with tabs for each year that has these columns: Date Paid, Date of Service, Payee, Amount, the insurance that was used at the time, and notes about the expense like, “Raj semi-annual cleaning at the dentist”.
I then take a digital copy of the receipt (either scanning it or downloading the PDF) and save it in my HSA folder (with separate folders for each year), which is automatically uploaded to the cloud. Is this slightly obsessive? Yes. Will future me appreciate it? Also yes. And it really takes very little time once you get used to doing it.Investment Options and Fees Vary: Not every HSA provider is great. Some have excellent investment options and low fees. Others seem determined to make your HSA investment experience feel like you’re managing a 401(k) from 1997. If your employer gives you an HSA provider you don’t like, you may have options for moving or transferring the money to another HSA custodian.
There are annual contribution limits: For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage. Those limits include contributions from both you and your employer. There is also a $1,000 catch-up contribution for people age 55 and older, subject to the applicable rules. So unlike your Netflix account, you can’t just keep throwing money into it indefinitely. There are limits.
A Family HSA Hack
You might be thinking, "Sounds great, Raj, but my family has kids. Kids are basically tiny, uncoordinated adrenaline junkies who view emergency rooms as recreational destinations. We NEED a low-deductible copay plan."
Fair point. I’ve met children. They’re basically expensive little insurance-claim generators. But if both you and your spouse have access to employer benefits, there is a stealth maneuver you might want to check out: The Split Coverage Strategy. The setup:
Spouse #1: Enrolls in their employer’s Low-Deductible PPO with Family Coverage (covering Spouse #1 + kids). Kids get low copays, low deductibles, and total protection when they inevitably injure themselves.
Spouse #2: Enrolls in their employer’s High Deductible Plan as an individual. They max out an individual HSA, throw it into index funds, and leave it alone to compound untouched.
As long as Spouse #2 isn't listed on Spouse #1’s PPO plan, Spouse #2 gets to run a stealth HSA wealth-building machine on the side while the family stays fully covered under the low-deductible safety net.
Standard legal disclaimer: Whether this strategy actually works depends on the specific plan designs and IRS eligibility rules, including whether the HSA-eligible individual has other disqualifying coverage.
So don’t take my newsletter, print it out, hand it to HR, and say, “Raj said this is legal.” HR may not appreciate that.
Check with your benefits department or a qualified tax professional to make sure your specific coverage arrangement allows HSA contributions.
Also Read
Conclusion
If you’ve run the numbers and found that a high-deductible health plan works for you and you’re eligible for an HSA, my honest advice is: don’t wait like I did. Even small, early contributions get more time to compound tax-free. And if a full HSA-only setup doesn’t fit your family’s health needs, you might want to consider whether a split-coverage approach could give you the best of both worlds.
If you have an HSA and you’re letting the balance sit in default cash, or using it like a medical debit card every time you buy a box of allergy pills, I think you’re potentially missing out. Fund it, invest it in solid ETFs, hoard your medical receipts in a cloud folder, and let decades of compounding do the work. Don’t wait 20 years into your financial life to figure this out like I did.
Until next time, keep your costs low, your receipts saved, and your growth tax-free.
That's it for this week! As always, no financial decisions should be made solely on this newsletter, which is for informational and entertainment purposes only and is not intended to be a substitute for advice from a professional financial advisor or qualified expert. If you haven’t already, please subscribe to this newsletter below and never miss an update: