What is a health savings account (HSA)?

A health savings account (HSA) is specifically designed as a tax-advantaged savings account to help individuals save for qualified medical expenses. Contributions made to an HSA can be deducted from taxable income, thereby offering tax benefits that can enhance overall savings for health care costs. The funds in the account can be used to pay for out-of-pocket medical expenses such as deductibles, copayments, and certain other health-related costs.

HSA accounts are associated with high-deductible health plans (HDHPs) and can be rolled over from year to year, unlike flexible spending accounts (FSAs), which often have a "use it or lose it" structure. This makes HSAs a valuable tool for individuals looking to manage rising health care costs while also benefiting from the tax advantages that come with these accounts.

Other options do not accurately reflect the nature of an HSA; for instance, while it may seem similar to a retirement account, an HSA serves a different purpose and has specific rules around medical expenses. Regular checking accounts lack the tax benefits and restrictions applicable to HSAs, and prepaid health insurance plans do not involve personal savings but rather provide predetermined coverage options.