What is a health savings account (HSA)?

A health savings account (HSA) is a tax-advantaged account specifically designed for individuals who have high-deductible health plans (HDHPs). The primary purpose of an HSA is to allow individuals to save for medical expenses while enjoying tax benefits. Contributions made to the HSA can be deducted from taxable income, reducing overall tax liability. Additionally, the funds within the account grow tax-free, and withdrawals used for qualified medical expenses are also tax-free.

The association with high-deductible health plans is crucial; to qualify for an HSA, individuals must be enrolled in an HDHP, which typically has higher deductibles and lower premiums than traditional health plans. By using an HSA, individuals can set aside money specifically for healthcare costs, making it an effective tool for managing medical expenses while still benefiting from tax advantages.

Other choices do not capture the specific nature and benefits of an HSA accurately. The correct characterization emphasizes both the tax advantages and the requirement of being linked to a high-deductible health plan, which are key components of an HSA.