What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged account for medical expenses, available to anyone enrolled in a qualifying high-deductible health plan (HDHP). It is the only account in the US tax code that offers a full triple tax advantage.
The triple tax advantage
- Tax-deductible contributions: reduce your taxable income in the year you contribute, similar to a Traditional IRA
- Tax-free growth: investments inside the HSA grow without annual tax on gains, interest, or dividends
- Tax-free qualified withdrawals: money used for qualified medical expenses comes out completely tax-free, at any age, for life
No other account offers all three. A Roth IRA is tax-free in and out but not deductible. A Traditional IRA is deductible and tax-deferred but taxed on withdrawal. HSA checks every box for qualified medical use.
The stealth retirement account
- At age 65, non-medical withdrawals are allowed and taxed as ordinary income (same as a Traditional IRA)
- Qualified medical withdrawals stay tax-free even after age 65
- Save receipts for decades: you can reimburse yourself years later for medical expenses paid out of pocket, as long as the HSA existed at the time of the expense
Key details
- HDHP required: you must be enrolled in a high-deductible health plan to contribute
- Annual limits: IRS sets single-coverage and family-coverage limits each year
- Investments: most HSA providers allow you to invest balances above a minimum into mutual funds or ETFs
- Not use-it-or-lose-it: unlike FSAs, HSA balances roll over forever and are yours if you change jobs
For anyone eligible, max out the HSA before most other retirement accounts. No other vehicle offers tax-free growth and tax-free withdrawals on the same dollars.