Health Savings Account

A health savings account is a tax-advantaged account available only to people enrolled in an HSA-eligible high-deductible health plan, with no other non-HDHP coverage and no Medicare enrollment. The money goes in pre-tax or deductible, grows untaxed, and comes out untaxed for qualified medical expenses: deductibles, copays, prescriptions, dental, and vision. That is the triple tax advantage, and no other US account carries it. For 2026, the IRS caps contributions at $4,400 for self-only coverage and $8,750 for family coverage, with an extra $1,000 catch-up from age 55.

The account is owned by the individual, not the employer, so balances roll over every year and survive job changes indefinitely. After 65, the rules soften: withdrawals for medical costs stay tax-free, while non-medical withdrawals are taxed as ordinary income, which makes the account function like a traditional IRA with a medical escape hatch.

Eligibility is the gate: you must be enrolled in an HSA-eligible high-deductible health plan, carry no other non-HDHP coverage, and not be enrolled in Medicare. Contributions for 2026 run $4,400 self-only or $8,750 family, plus $1,000 from age 55, and the money can land through payroll or by direct deposit with a deduction at filing. Payroll contributions carry a bonus the 401(k) lacks: they skip FICA, the 7.65% Social Security and Medicare tax, on every dollar. A family maxing the $8,750 limit through payroll saves roughly $670 a year in FICA alone before any income tax.

Inside the account, cash sits idle and anything above it can be invested in funds, where growth compounds untaxed. Withdrawals are tax-free for qualified medical expenses under IRS Section 213(d), which covers deductibles, copays, prescriptions, dental, and vision care, but not general premiums or cosmetic work. There is no deadline: save the receipts and reimburse yourself decades later, with growth in between. Non-medical withdrawals before 65 owe income tax plus a 20% penalty; after 65 the penalty drops away and the account behaves like a traditional IRA. Excess contributions owe a 6% excise tax every year they sit above the limit.

For a family on an HDHP, the HSA is the most tax-efficient wrapper available. FICA savings go in, growth compounds untaxed, and withdrawals come out untaxed for costs that arrive anyway. Fidelity pegs retiree healthcare costs at roughly $165,000 per person, which makes the account a stealth retirement vehicle with a medical purpose bolted on.

I watched a colleague named Brent (yes, that Brent) drain his HSA every year on co-pays and glasses, then cash out the remainder at a job switch. The withdrawal owed tax and the 20% penalty on a balance that had never been invested. The receipts he never saved and the growth he never earned cost him roughly $9,000 over six years.

The highest-leverage thing most Americans with an HDHP can do is fund the HSA to the max, invest the balance, and pay current medical costs out of pocket while banking the receipts. Price the plan choice with the HSA vs health plan calculator and the wrapper with the triple tax comparison calculator.