A health savings account, or HSA, is one of the most tax-advantaged accounts available, and it hides in plain sight inside health insurance. For those eligible, it offers something no other account does: three distinct tax advantages at once.
Contributions to an HSA are generally tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are tax-free. Most tax-advantaged accounts give you one or two of those; the HSA gives all three. That combination makes it unusually powerful, both for covering health costs and, for some, as a long-term savings vehicle.
To contribute to an HSA, you generally must be enrolled in an eligible high-deductible health plan and meet other requirements. The high deductible means you pay more out of pocket before insurance kicks in, which is the tradeoff, so the plan design has to fit your health situation. Annual contribution limits apply and change over time.
Because HSA funds roll over year to year and can be invested, some people pay current medical costs out of pocket and let the HSA grow for years, using it as a supplemental retirement account for future health expenses, which are substantial in retirement. After a certain age, non-medical withdrawals are taxed like ordinary income, similar to a traditional IRA. Whether this strategy fits depends on your cash flow and health needs; it is a decision to weigh with your advisor.
Three tax breaks, if the plan fits your health.
This is general educational information, not personalized investment, tax, or legal advice. Consult a qualified professional about your situation.