Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-advantaged account available to people enrolled in a qualifying high-deductible health plan, where contributions are deductible, growth is tax-free, and withdrawals for qualified medical costs are never taxed.
The HSA stacks three tax breaks that no other account gives you at once. Money goes in pre-tax (or you deduct it), it compounds without you owing a dime on the gains, and it comes back out tax-free when you spend it on qualified medical care. A 401(k) taxes you on the way out; a Roth taxes you on the way in. The HSA does neither, as long as the dollars eventually pay for healthcare.
For 2026 you can put in $4,400 with self-only coverage or $8,750 for a family. If you're 55 or older, add another $1,000 on top, a catch-up amount Congress fixed by statute back in 2009 and has never indexed to inflation. To qualify, your plan has to be a real high-deductible plan: at least a $1,700 deductible for an individual or $3,400 for a family in 2026, with out-of-pocket maximums capped at $8,500 and $17,000. Miss those thresholds and you're not eligible to contribute, period.
Here's where most people leave money on the table. Don't treat the HSA as a checking account for copays. Pay current medical bills out of pocket, leave the HSA invested, and let it ride for a decade or two. The IRS sets no deadline on reimbursement, so a doctor's bill you pay cash for this year can be reimbursed tax-free from the account in 2046 (keep the receipt). You're effectively turning the HSA into a stealth retirement account that grows untouched.
At 65 the rules loosen. Pull money out for any reason and you owe ordinary income tax but no penalty, which makes it behave like a traditional IRA for non-medical spending. Used for qualified medical costs, including Medicare Part B, Part D, and Advantage premiums, it stays completely tax-free (Medigap supplemental premiums don't qualify). The one mistake to avoid: once you enroll in Medicare you can no longer contribute, so plan your final contribution year before you sign up.
If you run an S-corp and own more than 2%, the mechanics trip people up. The company's HSA contribution gets added to your W-2 wages in Box 1, but it's exempt from Social Security and Medicare tax, and you deduct it above the line on your 1040. Net result: it lands in the HSA pre-income-tax and skips payroll tax entirely. Just don't confuse this with the health insurance premiums the company pays on your behalf, which follow the same W-2 reporting but are a separate line item.
Practical Example
Say your family maxes out at $8,750 a year and invests every dollar inside the HSA. At an 8% average return, end-of-year contributions compound to roughly $400,000 after 20 years. Over that stretch you've contributed $175,000 of your own money. At a 24% federal marginal rate, the deductions alone save about $42,000 in federal income tax, and if you funded through a payroll cafeteria plan you also dodged the 7.65% FICA on each contribution. Spend that balance on qualified medical care in retirement and none of the $400,000 is ever taxed.