What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is specifically designed as a tax-advantaged account that allows individuals to save money for qualified medical expenses. The fundamental purpose of an HSA is to provide a means for individuals to put aside funds on a pre-tax basis, which can then be used for various out-of-pocket health care costs, such as deductibles, copayments, and some other health-related expenses.

Contributions to HSAs are tax-deductible, and the money grows tax-free as long as it's used for qualified medical expenses. Additionally, withdrawals for those expenses are also tax-free, making HSAs a beneficial tool for managing health care costs and saving for future medical needs. Additionally, HSAs are often associated with high-deductible health plans (HDHPs), offering a combination of benefits that encourage individuals to manage their health care expenses wisely.

This understanding highlights the unique attributes of HSAs compared to other financial products, such as traditional savings accounts or investment accounts, which do not offer the same tax advantages or specific focus on health spending.