A Health Savings Account (HSA) is a tax-advantaged account that can be used with a High-Deductible Health Plan (HDHP) to save for medical expenses.
Triple tax advantage: 1. Contributions are tax-deductible (or pre-tax if through payroll). 2. Earnings grow tax-free. 3. Qualified withdrawals are tax-free.
No other account offers all three tax benefits simultaneously.
2025 contribution limits: - Self-only HDHP coverage: $4,300. - Family HDHP coverage: $8,550. - Catch-up contribution (age 55+): +$1,000.
HDHP requirements (2025): - Minimum deductible: $1,650 (self-only) / $3,300 (family). - Maximum out-of-pocket: $8,300 (self-only) / $16,600 (family).
Qualified expenses: Medical, dental, vision expenses; Medicare premiums after 65; long-term care insurance premiums (age-based limits).
Non-medical withdrawals: - Under 65: Income tax + 20% penalty. - Age 65+: Income tax only (like a Traditional IRA) — HSA becomes a de facto retirement account.
Key benefits: - Funds roll over indefinitely (no "use it or lose it"). - Accounts are portable — owned by the individual, not the employer. - Can invest in mutual funds/ETFs once the balance exceeds a threshold.
> Exam tip: HSA = triple tax-free only if used for medical expenses. After 65, non-medical withdrawals avoid the 20% penalty (just income tax). Cannot contribute if enrolled in Medicare.