What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is defined as a tax-advantaged account specifically designed to help individuals save money for qualified medical expenses. Contributions made to an HSA are typically pre-tax, which means they can reduce an individual's taxable income, and the funds can grow tax-free. Additionally, withdrawals for qualified medical expenses – such as medical, dental, and vision care – are also tax-free. This makes the HSA an effective tool for managing healthcare costs while also enjoying tax benefits.

Furthermore, HSAs have certain rules that distinguish them from other types of accounts. For example, to establish an HSA, an individual must have a high-deductible health plan (HDHP), which is intended to encourage individuals to take more responsibility for their healthcare spending. The funds in an HSA roll over from year to year, making it versatile as they can accumulate for future use, including retirement health expenses.

This account is specifically not meant for purchasing wellness programs or non-qualified medical expenses. While it does offer some retirement-like benefits in terms of savings, it is not classified as a retirement account since it is focused on healthcare expenses.