The IRS has announced updated guidelines for high-deductible health care plans (HDHPs) in 2025. These plans typically offer lower monthly premiums, but when claims arise, you’ll need to cover a higher upfront cost — the deductible — before your insurance coverage begins.
For 2025, the IRS defines an HDHP as having an annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage.
Additionally, annual out-of-pocket expenses, including deductibles and copayments, but excluding premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.
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There is a silver lining, though. If you’re enrolled in an HDHP, not listed as a dependent on someone else’s tax return and aren’t enrolled in Medicare, you likely qualify to open a health savings account (HSA).
As Sabino Vargas, senior financial advisor at Vanguard, explains, “HSAs are popular investment vehicles for covering medical costs due in part to their triple tax advantage: Contributions are deductible; investment growth is tax-deferred; and withdrawals are tax-free for qualified expenses.”
This triple tax advantage starts with contributions, which reduce your taxable income just like a 401(k) contribution. For 2025, the IRS has set the contribution limits at $4,300 for individuals and $8,550 for families, with an additional $1,000 in catch-up contributions for those aged 55 or older.
Moreover, any investment gains within the account, whether from dividends, capital gains or interest income, grow tax-deferred, so there’s no tax due on realized gains.
Finally, withdrawals used for qualified medical expenses, such as prescriptions, doctor visits and dental care, are entirely tax-free.
However, while the tax advantages make HSAs appealing, their relatively low contribution limits make smart investment choices essential. Just as certain funds are well-suited for a Roth IRA, others align perfectly with an HSA.
Selecting the right funds can help maximize growth potential while ensuring you’re prepared for possible medical expenses in the future.
Here are six of the best mutual funds to add to an HSA, if offered by a plan provider:
| Fund | Expense ratio |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 0.04% |
| Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) | 0.04% |
| Fidelity Blue Chip Growth Fund (FBGRX) | 0.47% |
| Schwab Target 2060 Index Fund (SWYNX) | 0.08% |
| Schwab Value Advantage Money Fund — Investor Shares (SWVXX) | 0.34% |
| Fidelity Limited Term Government Fund (FFXSX) | 0.30% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
“An HSA can be used as an additional ‘off-label’ retirement account,” Vargas says. “For those already maximizing contributions to tax-favored retirement accounts, funding an HSA and treating it like a retirement savings account can allow those assets to grow as long as possible.” Thus, even young investors in good health can find viable uses for an HSA as another tax-sheltered vehicle.
For strong growth potential, consider using an S&P 500 index fund like VFIAX. Over the trailing 10-year period, this fund has delivered a 13.1% annualized return. However, if distributions and sale of fund shares were taxed, that would be cut down to just 10.8%. Thus, keeping VFIAX in an HSA can maximize long-term total returns. This fund charges a low 0.04% expense ratio.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
“When choosing which investments to use, cost matters, so consider a low-cost, diversified investment so that you can keep more of your investment returns,” Vargas says. “The lower the expense ratio, the harder your HSA can work for you.” An affordable alternative to VFIAX to consider is VTSAX, which is arguably more diversified, with over 3,600 holdings versus just 500.
This Vanguard fund tracks the CRSP U.S. Total Market Index. Unlike the S&P 500, this benchmark also includes thousands more small- and mid-cap stocks. However, because it is market-cap weighted, the top holdings in VTSAX are the same as VFIAX. Historical performance has been similar, too, with VTSAX returning an annualized 12.5% over the past 10 years. The fund charges a 0.04% expense ratio.
Fidelity Blue Chip Growth Fund (FBGRX)
“Look for straightforward funds with simple explanations, clear strategies and investment goals that you can easily understand,” says Jordan Taylor, independent financial advisor at Core Planning. “Funds with a positive trailing five- and 10-year return at a minimum are often good places to start, as are those with expense ratios below 0.5%.” A Fidelity fund that checks all these boxes is FBGRX.
Unlike VFIAX and VTSAX, FBGRX does not passively track an index. Instead, it is actively managed, selecting “well-known, well-established and well-capitalized” growth stocks. Historically, FGBRX has strongly outperformed both the Russell 1000 Growth Index and the Morningstar Large Growth fund category average over 10- and five-year trailing periods. It currently charges a 0.47% expense ratio.
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Schwab Target 2060 Index Fund (SWYNX)
“Some investment funds will automatically tailor the mixture of stocks versus bonds over time, so that your funds in the HSA may be more easily spent in the future,” Taylor says. “By investing in these funds, investors can better match their portfolio’s level of risk to their time horizon, or when they expect to cash out and spend their investment.” These funds are best suited for hands-off investors.
For example, young investors anticipating retirement and possible medical expenses around 2060 can use SWYNX as a one-fund portfolio in an HSA. This fund is currently 95% stocks and 5% bonds and cash equivalents. But as time passes, SWYNX’s asset allocation will gradually adjust to become more conservative on a “glide path” to match an investor’s decreasing time horizon and risk tolerance.
Schwab Value Advantage Money Fund — Investor Shares (SWVXX)
“Consider focusing on your risk tolerance as well as the expected timing of future health care expenses when choosing your HSA investments,” says Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors. “Are you comfortable with taking on higher volatility, or do you prefer to be more conservative? Do you have an expensive medical procedure planned?”
If your goal with an HSA is to have money safe and readily available for withdrawal, consider a fund that prioritizes capital preservation and steady income. In this scenario, a money market fund like SWVXX might be ideal. The net asset value of this fund is pegged at $1 per share and it pays a steady monthly distribution amounting to a 4.2% seven-day SEC yield. SWVXX charges a 0.34% expense ratio.
Fidelity Limited Term Government Fund (FFXSX)
“The longer you can leave the money alone, the more risk you can take,” says Georgia Bruggeman, founder and CEO of Meridian Financial Advisors. “If you know you will need to spend some of the funds in an HSA for health care expenses within the next year, then consider leaving those funds either in cash equivalents or an ultra-short-term bond fund.” A Fidelity fund to consider here is FFXSX.
This fund can serve as a slightly higher-risk alternative to money market funds. FFXSX’s holdings are largely Treasurys with some mortgage-backed securities. All of these assets are screened for high credit quality and short maturity to minimize both default and interest rate risk. FFXSX currently pays a 4.1% 30-day SEC yield. It charges a 0.3% expense ratio and has no minimum required investment.
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6 Funds to Add to Your HSA originally appeared on usnews.com
