HSA (Health Savings Account)
A Health Savings Account (HSA) is a tax-advantaged account available to individuals enrolled in a high-deductible health plan (HDHP) that can be used to pay for qualified medical expenses, and doubles as a powerful stealth retirement account.
The Health Savings Account is often called the 'triple tax advantage' account because contributions are tax-deductible (or pre-tax when made via payroll), investment growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. No other account in the U.S. tax code offers all three benefits simultaneously.
To be eligible, you must be enrolled in an IRS-qualified high-deductible health plan (HDHP). For 2025, an HDHP must have a minimum deductible of $1,650 for self-only coverage or $3,300 for family coverage. The maximum out-of-pocket limits are $8,300 and $16,600, respectively.
For 2025, the HSA contribution limits are $4,300 for self-only coverage and $8,550 for family coverage. Individuals aged 55 and older may contribute an additional $1,000 catch-up amount. Contributions can be made by the individual, their employer, or a combination — but the total from all sources cannot exceed the annual limit. Contributions are not subject to federal income tax, Social Security tax, or Medicare tax when made through a payroll deduction.
The 'stealth retirement account' strategy leverages a key HSA feature: after age 65, withdrawals for any purpose (not just medical) are taxed only as ordinary income — exactly like a Traditional IRA — eliminating the 20% penalty that applies to non-medical withdrawals before 65. Meanwhile, HSA funds used for qualified medical expenses remain forever tax-free regardless of age. By investing HSA funds in low-cost index funds (many custodians offer this once a cash threshold is met) and paying current medical bills out of pocket while saving receipts, an individual can accumulate a tax-free pool of capital reimbursable for any past medical expense, with no time limit on reimbursement.
HSA funds roll over year after year with no 'use it or lose it' rule (unlike Flexible Spending Accounts). The account is individually owned, so it follows you when you change jobs. Medicare enrollment ends HSA eligibility for new contributions but does not affect existing balances.