HSA — Health Savings Account
A Health Savings Account (HSA) is a U.S. account available to people covered by an eligible High‑Deductible Health Plan (HDHP) (and who meet other eligibility rules). When used correctly, it can be one of the most tax‑efficient accounts available.
The core idea (in plain English)
You contribute money, invest it, and then withdraw it for qualified medical expenses. If you follow the rules, contributions can be tax‑favored, growth can be tax‑free, and qualified medical withdrawals can be tax‑free.
The three tax benefits (the “triple” part)
- Contributions are often pre‑tax via payroll (or deductible when contributed directly).
- Growth inside the HSA can be tax‑free.
- Qualified medical withdrawals are generally tax‑free.
Two common ways people use HSAs
Spend-now approach
Use the HSA like a dedicated medical spending account for deductibles, prescriptions, and other qualified expenses.
Invest-and-save approach
Some people pay current medical costs out of pocket, keep receipts, and allow the HSA to stay invested. They can reimburse themselves later (subject to rule compliance and recordkeeping).
- You pay $1,200 in eligible medical bills this year out of pocket.
- You keep documentation.
- Your HSA stays invested for years.
- In the future you reimburse yourself $1,200 from the HSA (if rules are met).
Common pitfalls
- Not being eligible (HDHP requirement and other criteria).
- Taking non-qualified withdrawals (can trigger tax and penalties).
- Weak recordkeeping if reimbursing later.
If you’re eligible, an HSA is often a high-priority account: it can cover healthcare today and potentially act like long-term tax-advantaged savings for healthcare later.
Educational only. Always confirm eligibility, limits, and plan rules with IRS guidance or plan documents.