Health Savings Account (HSA)
A Health Savings Account (HSA) is a triple-tax-advantaged savings account available to individuals enrolled in a high-deductible health plan, used for medical expenses now or in retirement.
The HSA is often called the most tax-efficient account in the tax code because it offers three distinct tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. No other account type offers all three.
For 2025, contribution limits are $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution for those 55 and older. To qualify, you must be enrolled in a high-deductible health plan (HDHP) with a minimum deductible of $1,650 (individual) or $3,300 (family).
A powerful strategy is to pay current medical expenses out of pocket and let your HSA grow invested for decades. There is no deadline to reimburse yourself — you can pay a medical bill today and withdraw the HSA funds 20 years from now, tax-free, as long as you keep the receipt.
After age 65, HSA funds can be withdrawn for any purpose (not just medical) with no penalty — you'll simply pay income tax, similar to a traditional IRA. This makes the HSA a powerful supplemental retirement account.
For S-Corp owners, HSA contributions must be handled carefully. The company pays the premiums and reports them on the owner's W-2, but the owner deducts the contribution on their personal return.
Practical Example
A family contributes $8,550 to their HSA annually and invests it in index funds. Over 20 years at 8% average returns, the account grows to approximately $390,000 — all of which can be withdrawn tax-free for medical expenses in retirement. The cumulative tax savings on contributions alone exceeds $40,000.