HSA (Health Savings Account)
A tax-advantaged account that lets you save pre-tax money for qualified medical expenses, available with high-deductible health plans.
Definition
A Health Savings Account (HSA) is a tax-advantaged savings account specifically designed to pay for qualified medical expenses. HSAs are available to people enrolled in high-deductible health plans (HDHPs) and offer a triple tax advantage that makes them one of the most powerful financial tools available.
The triple tax advantage:
1. Contributions are made pre-tax (or are tax-deductible if made directly)
2. Money grows tax-free through investments
3. Withdrawals are tax-free when used for qualified medical expenses
Unlike Flexible Spending Accounts (FSAs), HSA funds roll over year to year indefinitely. This means you can accumulate funds over time and use them for healthcare expenses in retirement — when medical costs are typically highest. After age 65, HSA funds can be used for any purpose (with regular income tax applying to non-medical withdrawals, similar to a traditional IRA).
For 2026, the HSA contribution limits are $4,300 for individuals and $8,550 for families (plus an additional $1,000 catch-up contribution if you're 55 or older).
Examples
You enroll in your employer's high-deductible health plan and contribute $4,300 to your HSA. You use $1,500 for medical expenses during the year, and invest the remaining $2,800. Over 10 years, this grows tax-free.
You have $8,000 in your HSA from previous years. After age 65, you use it to pay Medicare Part B premiums — a qualified HSA expense — tax-free.
You pay for glasses, therapy sessions, and prescription medications from your HSA instead of your regular bank account, effectively getting a 25–35% discount (your tax rate) on those expenses.
Frequently asked questions
What qualifies as an HSA eligible expense?
Qualified HSA expenses include most medical, dental, and vision expenses — doctor visits, prescriptions, dental cleanings, glasses and contacts, mental health services, physical therapy, and many over-the-counter medications. The list also includes some less-obvious items like menstrual care products, sunscreen, and certain equipment.
What's the difference between an HSA and FSA?
The key differences: HSAs require enrollment in a high-deductible health plan; FSAs are available with most health plans. HSA funds roll over indefinitely; FSA funds are generally use-it-or-lose-it. HSAs can be invested and grow tax-free; FSAs typically cannot be invested.
Can I use my HSA for non-medical expenses?
Before age 65, non-medical withdrawals are subject to income tax plus a 20% penalty. After age 65, non-medical withdrawals are subject only to regular income tax — making the HSA function like a traditional IRA for retirement savings.
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