HEALTH SAVINGS ACCOUNT (HSA) is the most efficient tax-advantaged investment account because it offers a triple tax advantage:

1. Contributions are tax-deductible
2. Earnings grow tax-free
3. Withdrawals are tax-free if used for medical expenses

One of the best uses of an HSA is to actually invest the balance. For example, I keep $500 (the minimum required balance) in cash. The rest, I invest in low-cost index funds. This allows me to maximize compounding inside the HSA account. I also receive a $1,000 HSA match. Since I’m young and my medical expenses are low, it’s a great way to minimize taxes and grow the balance. I will also not touch my HSA at all, even if I have medical expenses. I will reimburse myself 20-30 years down the road (more on this in a bit). But if you are paying medical expenses with the HSA, you should have at least a portion of the funds in a Treasury fund or money market fund (MMF) for stability. Generally, this amount should be equal to at least one year of deductible costs. Rules To contribute to an HSA, three things must happen:

1. You need a high deductible health plan (HDHP). You cannot contribute to an HSA without one. A “high deductible health plan” is defined under §223(c)(2)(A) as a health plan with an annual deductible of more than $1,700 for self-only coverage or $3,400 for family coverage. The maximum out-of-pocket limit is $8,500 or $17,000 (family).

Importantly, before enrolling in a high deductible plan, you need to decide whether it’s worth it in the first place. You will generally receive the biggest benefit from an HDHP if you are in good health (more on this in a bit). 2. You aren’t enrolled in Medicare. 3. You cannot be claimed as a dependent. Importantly, the HSA balance never expires. This account is always yours to keep, even if you leave your employer. Some people confuse an HSA with an FSA (which does expire, aside from a small potential rollover option). The account typically works like a “bank account,” where you make deposits and can withdraw money via online transfers or checks, or invest it like a brokerage account. Contributions The 2026 contribution limit is $4,400 for an individual plan and $8,750 for a family plan, with an additional $1,000 catch-up contribution if you are 55 or older. The contribution limit includes both your contributions and your employer’s contributions. If your employer allows it, contributing to an HSA via payroll deduction is generally better than contributing directly, as it avoids the 7.65% FICA (Social Security and Medicare) taxes. Direct, after-tax contributions only save on income tax when filing, missing the payroll tax savings. Withdrawals Withdrawals for medical expenses are tax-free. IRS Publication 502 has information about which expenses qualify as medical expenses. In addition, as long as you keep proper records, you can reimburse yourself in a later year. I keep track of all my medical expenses in a spreadsheet (e.g., with columns for EOB documents, receipts, bills, etc). I plan to reimburse myself in the future, assuming the law doesn’t change. In 2025, House Bill 6183 was proposed to change the reimbursement limit to expenses no older than two years, but it didn’t gain any traction. If there is a change in legislation, I plan to reimburse myself for all prior medical expenses before enactment. Once you turn 65, you can withdraw money from your HSA for any reason without penalty. However, you will owe income taxes on any non-medical withdrawals, effectively making this similar to a Traditional 401(k) or IRA. Inheriting an HSA Per Publication 969, if your spouse is the designated beneficiary of your HSA, it will be treated as your spouse’s HSA after your death. If your spouse isn’t the designated beneficiary (e.g. your child is the beneficiary), the account stops being an HSA and the fair market value of the HSA becomes taxable to the beneficiary in the year in which you pass away. This is why tax free HSA dollars should ideally be spent before passing down an inheritance due to tax inefficiency. On the other hand, naming a beneficiary in a low-income tax bracket to receive the deceased person’s HSA can also be beneficial for tax purposes. HSA can be powerful, but make sure the math makes sense. If you spend thousands of dollars on medical bills, having a standard plan could outweigh all the tax savings you can get.   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.

BEFORE ITS FAILURE in 2008, Lehman Brothers had been one of the most prominent investment firms in the United States. After 158 years in business, what caused it to collapse so suddenly? In a word: complexity. Lehman had been involved in the securitization of mortgages, a process that resulted in taking something relatively simple—a home mortgage—and turning it into something much more complicated, thus obscuring its true risk level. That was the proximate cause for the firm’s failure. In addition to mortgage bonds, Lehman specialized in creating other complex instruments. A document titled “The Lehman Brothers Guide to Exotic Credit Derivatives” can still be found on the internet. The strategies it describes are the sorts of things that ultimately brought the firm down. When it comes to making investment choices, risk is unavoidable. No one can know what path the economy, the market or any given investment will follow. But that doesn’t mean investment risk is entirely outside our control. There are, in my view, certain characteristics we can look for in investments that can help tilt the odds in our favor. Here are four to consider. Simplicity. Peter Lynch, former manager of the Fidelity Magellan Fund, had this warning for investors: “Never invest in any idea you can’t illustrate with a crayon.” Lynch felt that simplicity was paramount because investing is hard enough. As Kodak, Polaroid and BlackBerry taught us, things can go wrong even for well-run companies. But when an investment is complicated, it’s that much harder to assess how things might go. Consider, for example, an exchange-traded fund called the Box ETF (ticker: BOXX). It’s designed to deliver performance comparable to U.S. Treasury bills but in a more tax-efficient manner. For that reason, it’s quite popular, and I’m asked about it frequently. Despite the clear tax advantage, though, I advise against it. That’s because of its complex structure, which involves a strategy known as a box spread. This is how it’s described on the BOXX website: “A box spread is an options trading strategy that combines a long call and short put at one strike price with a short call and long put at a different strike price.”  Another question about BOXX is whether the IRS might challenge the tax strategies it’s employing. BOXX could work out just fine, but in my view, the complexity and IRS risk just aren’t necessary. And even though it’s worked well so far, the hardest part about complex instruments is that we can’t know in advance how they’ll perform through various market cycles. Times of stress could cause an otherwise successful strategy to fail. That was the lesson of Lehman Brothers. Management style. For decades, there’s been a debate between advocates of active and passive investing. That debate is an important one, but it isn’t the only one. Within the world of actively-managed funds, there are also important distinctions. Funds like the Magellan Fund, for example, are straightforward. The manager’s aim is to choose a group of stocks that he thinks will outperform. That’s one type of actively-managed fund and is the most common one, but there are many others. Some funds take a tactical approach, trading in and out of different asset classes in response to the managers’ sense of where markets are headed. Morningstar analyst Jeffrey Ptak analyzed these funds a few years back and concluded that they “would have earned twice as much if their managers didn’t trade over the past decade.” The funds’ managers, in other words, only subtracted value. The lesson: The investment world is much more nuanced than the simple distinction between active and passive, and the passive realm isn’t immune to potholes either. So be sure to look carefully under the hood of any fund you’re considering. Tax-efficiency. Mutual funds and exchange-traded funds offer a number of advantages, but they can also carry risk in the form of higher tax bills because funds are required to distribute the bulk of their gains to shareholders on a pro rata basis. Careful due diligence is required on this point because there’s a misconception that a fund’s turnover ratio—which measures the amount of trading inside a fund—is the best proxy for tax efficiency. Turnover can be an imprecise measure, though. Consider a fund like the PIMCO Total Return Fund (ticker: PTTRX). It has thousands of holdings—everything from bonds to currencies to interest rate swaps, credit default swaps, reverse repurchase agreements, and more. As a result of this diverse mix, it has an extremely high turnover rate, north of 600%. With so much trading, you might expect this fund to be massively tax-inefficient. But surprisingly, it isn’t. It hasn’t generated any capital gains distributions at all in the past four years.  In contrast, a fund like Magellan might appear to be more tax-efficient, with a much lower turnover ratio of 49%. But Magellan has generated significant capital gains for its investors in each of the past several years. The lesson: When assessing a fund’s tax efficiency, be sure to study its distribution history. That’s the metric that’s most meaningful. Concentration. With the rise of the so-called Magnificent Seven stocks, there’s been increasing hand-wringing over the concentration level of the S&P 500. The top 10 stocks today account for nearly 40% of the entire index. On the one hand, this is unprecedented and potentially cause for concern. But as The Wall Street Journal’s Jason Zweig pointed out recently, there’s more than one way to look at market concentration. At one point, for example, AT&T accounted for nearly 13% of the entire market. Today, the market’s largest stock, Nvidia, poses a risk but nonetheless has a more modest weighting of less than 7%. The bottom line: Concentration may or may not turn out to be a problem in the coming years. But since we don’t have the benefit of hindsight, this is another area where you could be defensive with your portfolio. If concentration is a potential risk, it’s one that’s easy to avoid. To diversify away from the S&P 500, you could allocate to value stocks, to small- and mid-cap stocks and to international stocks.  Other factors. How else can you play defense with your portfolio? In evaluating prospective funds, I’d also consider the length of its track record, the firm behind it, and, as discussed last week, the fund’s withdrawal policies. Investment risk may be unavoidable. But that doesn’t mean it can’t be managed.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. 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