HSA (Health Savings Account)
Definition
A tax-advantaged savings account linked to a high-deductible health insurance plan. You contribute pre-tax money, it grows tax-free, and withdrawals for qualified medical expenses are tax-free. After 65, unused money can be withdrawn like a retirement account (with taxes on non-medical expenses).
Why It Matters
HSAs are one of the most tax-efficient savings vehicles available. Triple tax advantage: tax-deductible contribution, tax-free growth, tax-free withdrawals (for medical). Some people max their HSA and invest it rather than spending immediately, using it as a retirement account.
Example
Contribute $4,150 annually to an HSA (2024 limit for individual). It grows at 7% for 30 years. You need $500 in medical expenses. Withdraw $500 tax-free. The $4,150 compounds to $400,000 — all tax-free. That's powerful.