What Is Health Savings Account (HSA)?
A triple-tax-advantaged account for medical expenses that doubles as a retirement vehicle.
The Full Definition
A Health Savings Account (HSA) is available to people enrolled in a high-deductible health plan (HDHP). It's unique for having three tax advantages: contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. After age 65, you can withdraw for any purpose (paying regular income tax, like a Traditional IRA). Many financial planners consider the HSA the most tax-efficient savings account available — more powerful than both a 401(k) and a Roth IRA for the right person.
Real-World Example
A 30-year-old contributing $4,300/year to an HSA and investing it in low-cost index funds — rather than spending it — can accumulate over $500,000 by retirement to cover healthcare costs completely tax-free.