HSA (Health Savings Account)
Also known as: Health savings account
A Health Savings Account is a US tax-advantaged account paired with a qualifying high-deductible health plan. Contributions are pre-tax, growth is tax-free, and qualified medical withdrawals are tax-free — the only triple-tax-advantaged structure in the US tax code.
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The HSA was created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and codified at Internal Revenue Code Section 223. The account is owned by the individual (not the employer), portable across jobs, and survives the account holder's lifetime — there is no "use it or lose it" rule like the flexible spending account (FSA). Contribution limits for 2026 are $4,400 self-only and $8,750 family, with an additional $1,000 catch-up at age 55. Eligibility requires enrollment in a qualifying high-deductible health plan (HDHP), no other non-HDHP medical coverage, and not being enrolled in Medicare.
The structural advantage is the triple-tax-advantaged treatment. Contributions are deductible from federal income (and from most state income, with California and New Jersey as the major exceptions). Payroll-deducted contributions also escape FICA tax (7.65%), which no other tax-advantaged account offers. Investment growth inside the HSA is tax-free. Qualified medical withdrawals are tax-free. The combination is unique in the US code; no other account offers all three legs.
The most underused HSA feature is the receipts strategy. The IRS places no time limit on reimbursement: an out-of-pocket medical expense paid today can be reimbursed tax-free from the HSA decades later, against the documented receipt. Households that pay current medical expenses from after-tax cash and let the HSA balance compound untouched are effectively building a parallel retirement asset that can be withdrawn tax-free against accumulated receipts in retirement. The strategy converts the HSA from a medical-expense vehicle into the most efficient long-term retirement account most US workers have access to.
After age 65, non-medical HSA withdrawals are no longer subject to the 20% penalty that applies at younger ages. The withdrawals are still taxed as ordinary income (the same treatment as a Traditional IRA), but the penalty disappears. This means the HSA at 65+ functions either as a tax-free medical account (against qualifying medical expenses including Medicare premiums) or as a Traditional IRA-equivalent for non-medical use. Required Minimum Distributions do not apply to HSAs, so the balance can compound untouched indefinitely. The full mechanics are walked through in the long-form guide on the HSA as a retirement account.
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