What is a health savings account (HSA)?

A health savings account (HSA) is specifically designed to help individuals save for medical expenses on a tax-advantaged basis. Contributions made to an HSA are tax-deductible, meaning that individuals can lower their taxable income by the amount they contribute, and the funds in the account can grow tax-free. Withdrawals from the account for qualified medical expenses are also tax-free, providing a significant tax benefit for account holders.

This type of account is intended to be used in conjunction with a high-deductible health plan (HDHP), giving individuals a way to cover out-of-pocket medical costs effectively. By allowing such tax advantages, HSAs encourage individuals to save for future healthcare needs, making them an important financial planning tool for managing health-related expenses.

Other types of accounts, such as retirement accounts or standard savings accounts, do not have the same limitations or tax benefits associated with medical expenses. Hence, the primary purpose of an HSA stands apart in the context of healthcare financing and savings.