Health Savings Account (HSA)
A tax-advantaged savings account available to individuals enrolled in a high-deductible health plan, used to pay for qualified medical expenses.
What is HSA?
A Health Savings Account (HSA) is a tax-advantaged account available to individuals enrolled in a High-Deductible Health Plan (HDHP). HSAs offer a rare 'triple tax advantage': contributions are tax-deductible (or pre-tax if made through payroll), growth is tax-free, and withdrawals for qualified medical expenses are tax-free. In 2025, the IRS allows contributions of up to $4,300 for self-only HDHP coverage and $8,550 for family coverage (with a $1,000 catch-up for those 55+). Unlike Flexible Spending Accounts (FSAs), HSA funds roll over indefinitely and are owned by the individual — not the employer. After age 65, HSA funds can be withdrawn for any purpose (not just medical) and are taxed as ordinary income, making the HSA effectively a secondary retirement account. Investing HSA balances in low-cost index funds — rather than leaving them in cash — is a strategy that maximizes long-term tax-free growth.
Example
A 35-year-old maximizes their HSA by contributing $4,300 in 2025 and investing the full balance in a total market index fund. Over 30 years at 7% average annual return, the balance grows to approximately $32,700 — completely tax-free when withdrawn for medical costs in retirement, when healthcare expenses are typically highest. This tax-free compounding makes the HSA one of the most efficient accounts in the U.S. tax code.