Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax-advantaged savings account available to people enrolled in a qualifying High Deductible Health Plan (HDHP). Contributions are tax-deductible (or pre-tax if made through payroll), the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free — making it the only triple-tax-advantaged account in the US tax code. Unused balances roll over indefinitely and the account is owned by the individual, not the employer.

For 2024, the IRS contribution limits are $4,150 for individual coverage and $8,300 for family coverage, with an additional $1,000 catch-up contribution allowed for account holders aged 55 and over. Employers can contribute to employee HSAs as part of a benefits package, and those contributions are also tax-free to the employee. The HSA's power comes from its permanence: unlike a Flexible Spending Account (FSA), funds don't expire at year end. Members who are healthy and don't spend their HSA balance can invest it in mutual funds and let it compound over decades — the HSA becomes a de facto retirement account for medical expenses, and after age 65 withdrawals for any purpose are allowed (taxed as ordinary income, like a traditional IRA). For employers, HSAs are typically paired with HDHPs to shift cost-sharing responsibility to employees while giving them the tax tool to manage it. The math often works in the employee's favor when they're relatively healthy: premium savings from the HDHP can exceed the higher deductible they carry.

The takeaway: an HSA is the most tax-efficient way to pay for healthcare in the US, but it requires discipline — members need to understand that the HSA is a long-term savings vehicle, not just a debit card for copays. Employers should pair HSA education with HDHP enrollment and ideally make an employer contribution to get the account started.