HSA (Health Savings Account)

An HSA is the only account in the US tax code with a triple advantage. Contributions reduce your taxable income, the balance grows without tax on interest or gains, and withdrawals for qualified medical expenses come out untaxed. Contributing through payroll deduction also avoids Social Security and Medicare taxes, which no IRA or 401(k) contribution does.

Eligibility is narrow. You must be covered by a health plan that meets the IRS definition of high-deductible, cannot be enrolled in Medicare, and cannot be claimed as someone else's dependent. The IRS sets both the plan thresholds and the annual contribution cap, and adjusts them each year.

Unlike a flexible spending account, an HSA is not use-it-or-lose-it. The balance rolls over indefinitely and belongs to you rather than your employer, so it survives a job change intact.

That permanence is what turns it into a retirement account. Investing the balance rather than spending it, paying routine medical costs out of pocket, and keeping the receipts lets the money compound untouched — qualified expenses have no reimbursement deadline, so a receipt from today can justify a tax-free withdrawal decades from now.

After age 65 the rules loosen: withdrawals for any purpose are allowed at ordinary income tax rates with no penalty, which makes a leftover balance behave like a traditional IRA. Before 65, a non-medical withdrawal costs income tax plus a 20% penalty.