Health Savings Account (HSA)

A Health Savings Account (HSA) is a personal savings account that can be used to pay for qualified medical expenses. To be eligible to contribute to an HSA, you must be enrolled in a qualifying High Deductible Health Plan (HDHP), cannot be enrolled in Medicare, cannot be claimed as a dependent on someone else's tax return, and cannot have other non-HDHP health coverage (with certain exceptions like dental, vision, or specific-disease insurance).

The HSA is unique among tax-advantaged accounts because it offers a triple tax benefit. Contributions are tax-deductible (or pre-tax if made through payroll deduction), investment growth within the account is tax-free, and withdrawals for qualified medical expenses are also tax-free. No other account type in the tax code provides all three of these benefits simultaneously.

For 2025, the annual HSA contribution limit is $4,300 for self-only coverage and $8,550 for family coverage. Individuals age 55 and older can make an additional $1,000 catch-up contribution. Unlike Flexible Spending Accounts (FSAs), HSA funds roll over from year to year with no expiration, and the account is portable — it stays with you regardless of your employer or health plan.

Many financial planners view the HSA as one of the most powerful tools available for long-term savings, particularly when used as a retirement planning vehicle. By paying current medical expenses out of pocket (if financially feasible) and allowing HSA funds to grow and compound over time, the account can accumulate significant value. After age 65, HSA funds can be withdrawn for any purpose — non-medical withdrawals are simply taxed as ordinary income (similar to a Traditional IRA), while medical withdrawals remain tax-free.

Qualified medical expenses under IRS rules are broad and include doctor visits, prescription medications, dental care, vision care, long-term care premiums, and Medicare premiums (but not Medigap premiums). Keeping receipts for medical expenses paid out of pocket allows you to reimburse yourself from your HSA at any future date, with no time limit.