“Your HSA may be the smallest account you fund each year, but with tax-free compounding and the right investment strategy, it can become the quiet giant of your retirement plan.”

Retoro Capital Investments

Why your "smallest" retirement account might have the biggest long-term tax advantage

If you're already using a Self-Directed IRA (SDIRA), you're ahead of the curve. However, many investors don’t realize their Health Savings Account (HSA) can be just as powerful, and if used correctly, even more powerful than an IRA.

Most people think that due to lower annual contribution maximums that an HSA is a small player in retirement planning, but invested well, these flexible accounts can rival your IRA.

With triple tax benefits and flexible use, a Self-Directed HSA (SDHSA) can quietly become one of your best retirement power tools. Let's compare SDIRAs and SDHSAs, and show you how to use both for high returns with less taxes to prepare for your golden years.

What Is a Self-Directed HSA?

A Self-Directed HSA is a tax-advantaged account used for qualified medical expenses that allows you to invest beyond the standard mutual fund menus most banks offer.

Unlike a flexible spending account, an HSA can be rolled over year after year, turning it from a poorly named simple "health savings account" into a powerful retirement tool.

You must be enrolled in a High Deductible Health Plan (HDHP) to contribute to an HSA, self-directed or otherwise.

Triple Tax Advantage:

• Tax-deductible contributions (or pre-tax payroll contributions)

• Tax-free growth (capital gains, interest, and dividends)

• Tax-free withdrawals at any time for qualified medical expenses, or after age 65, penalty-free taxable withdrawals for any reason, similar to an IRA.

Who Can Actually Set Up a Self-Directed HSA?

Self-Employed:

If you're self-employed and buy insurance either via the ACA Marketplace or directly, you can choose an HSA-compatible HDHP. This gives you full control to select a passive custodian and self-direct your HSA investments.

W2 Employees:

Most employer-sponsored HSA plans restrict investments to pre-approved mutual funds or brokerages. Some do not allow investing the HSA at all until you leave that employer and can roll over the account.

To self-direct, you'll usually need to roll over funds from a previous HSA into a custodian like Directed IRA or Entrust.

Strategy Tip:

You can still contribute through payroll to your employer’s HSA while investing your independent or rolled-over HSA independently. Annual max contributions apply across all HSA accounts.

How SDHSAs and SDIRAs Are Similar

✅ Self-directed investment control

✅ Use of passive custodians (they hold assets, you direct them)

✅ Same eligible investment types for private-market investing

✅ IRS prohibited transactions rules apply

✅ Annual contribution limits (not per investment)

✅ Tax-advantaged growth, depending on account type

Think of your HSA as a more flexible Roth IRA with some unique advantages.

How SDHSAs Are Different from SDIRAs

Rules and amounts are as of 2025: always consult your financial and tax professionals

Most Investors Underutilize Their HSA

Do you treat your HSA like a glorified savings account for doctor bills? Rethinking the potential of this powerful tax-saving tool can help you maximize your returns.

• Most HSA funds sit in low-interest savings accounts or limited mutual fund lineups.

• Few people realize they can invest in private deals, just like they do with an SDIRA.

Used right, your HSA can be a medical emergency fund, tax-free growth engine, and legacy planning tool all in one.

Use Your HSA Like a Roth IRA

When I first started investing in real estate, I met many full-time, self-employed investors. Because early retirement was also on my brain, I asked a lot of questions about how they handled health insurance. Their different viewpoint on this opened my eyes to making more of the resources I already had.

One investor shared he had a serious medical condition requiring major surgeries every few years. He contributed the maximum to his HSA annually and invested it in a friend's hard money lending fund. He paid cash for all his medical expenses for possible tax benefits the year he paid, and allowed his HSA to grow. He will reimburse those expenses to himself from his HSA at a much later date.

Here's how you can copy this strategy for maximum flexibility and compounded returns.

Step-by-Step Strategy:

• Max out contributions annually.

• Pay medical expenses out of pocket (if you can).

• Save your receipts.

• Invest your HSA balance in high-growth, private investments.

• Reimburse yourself later tax-free after your accounts have grown.

Why it Works:

• There's no deadline for reimbursing yourself.

• Funds grow tax-free while you delay.

• You maintain full liquidity through documentation.

Imagine paying a $500 ER bill in cash today and turning it into a $3,000 reimbursement 15 years from now, all tax-free.

Investment Ideas for Your SDHSA

✅ First-lien real estate debt funds (like what we offer at RETORO)

✅ Private lending opportunities

✅ Syndications with no leverage (to avoid UBIT)

✅ Precious metals or crypto (through compliant platforms)

Compliance Must-Knows

🚫 No self-dealing like personal real estate, business, or any assets with disqualified persons

🚫 Syndications with debt unless using Solo 401(k) structure

✅ Keep detailed receipts for all qualified medical expenses.

✅ Use a passive custodian who supports self-direction.

✅ Talk to a CPA about UBIT, contribution limits, and reporting.

HSA vs. IRA for Alternative Investments for Best Tax Savings

You can use an IRA or an HSA for any type of allowable investment, but choosing which account is best for what type of investment can have a huge impact on your taxes before and after withdrawals.

Consider using your SDHSA when you want tax-free liquidity for medical expenses, and maxing out the Roth and HSA contributions to increase your total invested capital in tax-advantaged accounts.

If you’re already investing in private deals, you’re missing an easy win by not doing the same with your HSA.

Final Recap

• Self-Directed HSAs and IRAs aren’t just for retirement, they’re also important for overall tax strategy.

• Both accounts let you invest in private deals, but HSAs offer flexibility and triple tax advantages.

• If you're not using a self-directed IRA, it's time to set one up. If you’re already using one, it’s time to use both.

Next Steps

• Check your insurance: are you HSA-eligible?

• Open a self-directed HSA with a passive custodian.

• Identify alternative investments that work inside your HSA.

• Max out contributions and let it grow.

Want Help Putting It Into Action?

Retoro Capital accepts SDIRA and SDHSA capital into our passive real estate lending fund. Your smallest account can punch far above its weight class, so max it out and put it to work!

📅 Schedule a Call to learn how you can

• Earn 10 or 12% annually on low-risk 1st lien real estate loans

• Invest passively for the easiest money you'll ever make

• Grow your HSA tax-free while maintaining liquidity flexibility