A Health Savings Account (HSA) is a tax-advantaged savings account that individuals with high-deductible health plans (HDHPs) can use to save money specifically for qualified medical expenses. Contributions to an HSA are tax-deductible, grow tax-free, and withdrawals for eligible expenses are also tax-exempt, making it a triple tax-advantaged tool.

How It Works

An HSA allows individuals to save pre-tax income, reducing their taxable income while setting aside funds for healthcare costs. These accounts are owned by the individual and can be used for a wide range of qualified expenses, including doctor visits, prescriptions, and even some over-the-counter items. Unlike flexible spending accounts (FSAs), HSA funds roll over annually and remain available for future use, even after retirement.

Key details:

• Contribution Limits: Set annually by the IRS (e.g., $4,150 for individuals in 2024).
• Eligibility: Only available to those enrolled in HDHPs.
• Portability: The account belongs to the individual and isn’t tied to an employer.

Benefits and Practical Use Cases

HSAs offer flexibility in managing healthcare expenses and can also serve as a retirement savings tool, as unused funds can be invested for growth. For example, someone nearing retirement can use accumulated HSA funds to pay for Medicare premiums or long-term care costs.

Additionally, HSAs encourage proactive financial planning, allowing users to prepare for both short-term medical needs and long-term healthcare expenses. Their portability and investment potential make them a versatile tool for managing healthcare costs efficiently.