Health Savings Account (HSA)
An HSA is a savings account paired with a high-deductible health plan (HDHP). To contribute, you need HDHP coverage, and you can't also be on Medicare or claimed as someone else's dependent. In exchange, you get a tax deal no other account matches, which is why it's worth understanding even if you're young and healthy.
Going in
Tax-deductible
Contributions lower your taxable income for the year, just like a 401(k) does.
While it grows
Tax-free growth
Investment growth is never taxed year to year, the way it is in a brokerage account.
Coming out
Tax-free
Withdrawals for qualified medical expenses are completely tax-free, at any age.
The only account in the tax code with all three at once.
Contributions
For 2026, you can contribute up to $4,400 with individual coverage or $8,750 with family coverage, plus an extra $1,000 if you're 55 or older. There's no income limit and no earned-income requirement, so anyone with qualifying HDHP coverage can contribute. Many employers also chip in as a benefit. That money is yours immediately, though it counts toward the same annual limit.
If you contribute through payroll at work, there's a bonus almost nobody notices: those contributions skip Social Security and Medicare (FICA) taxes, about 7.65%, on top of the income tax deduction. Not even a 401(k) contribution escapes FICA, which makes payroll HSA contributions arguably the most tax-efficient dollars in the entire tax code.
What you can spend it on
Qualified medical expenses cover more than most people expect: doctor visits, prescriptions, dental work, vision care, mental health services, and medical equipment all count. After 65, Medicare premiums qualify too, which means an HSA can pay one of retirement's largest recurring bills tax-free.
Spend the money on something that isn't a qualified medical expense before age 65, and you'll owe regular income tax plus a 20% penalty, notably steeper than the usual 10% penalty on retirement accounts. After 65, that penalty disappears, and non-medical withdrawals are simply taxed as ordinary income, the same as a Traditional IRA. Unlike a Traditional IRA, though, an HSA has no required minimum distributions, so the money can sit and grow for life.
Why the HSA is so powerful
Some people use an HSA purely to pay current medical bills. Others treat it as a stealth retirement account instead: they pay medical bills out of pocket when they can afford to, save the receipts, and let the HSA balance invest and grow untouched for years or decades. Because there's no deadline on reimbursing yourself for a past qualified expense, the account can compound for 20 or more years and then be tapped for an amount equal to medical bills paid long ago, entirely tax-free.
One catch: investing the balance usually takes a deliberate step. Many HSAs default to a cash account earning almost nothing, and some providers only offer cash. If yours doesn't offer real investment options, you can roll the balance over to a provider that does. The account is fully portable, stays with you through every job change, and an HSA-to-HSA rollover moves the money without any tax.
HSA vs. FSA
An employer-run Flexible Spending Account (FSA) looks similar but works very differently. It's owned by the employer (you lose unused funds if you leave the job), the money usually can't be invested, and most plans force you to spend the full balance within the plan year or lose it. The HSA's biggest edge is that it's permanently yours: the balance rolls over and can be invested indefinitely.
Bottom line
If you have HDHP coverage and can afford to pay current medical bills out of pocket, an invested HSA belongs near the top of your savings priority list. No other account offers all three tax benefits at once.