What is a health savings account (HSA)?

A health savings account (HSA) is specifically designed to help individuals save money for qualified medical expenses while offering tax advantages. Contributions made to an HSA are tax-deductible, and the funds can be withdrawn tax-free when used for eligible healthcare costs, such as copayments, deductibles, and certain prescription medications. This feature makes HSAs a strategic financial tool for managing healthcare expenses and encourages individuals to take control of their healthcare spending.

In contrast, other options do not capture the essence of what an HSA truly is. For instance, while the first choice refers to a retirement savings vehicle, HSAs are primarily utilized for medical expenses, not retirement. The option suggesting that employers set up funds for employee health costs misrepresents the individual ownership aspect of HSAs. Lastly, describing an HSA as a traditional savings account without tax benefits overlooks the significant tax advantages that make HSAs unique and valuable in managing healthcare expenditures.