Health Savings Account (HSA)

Detailed Explanation

The HSA is the most tax-favored account in the US tax code: contributions are deductible (above the line, so even non-itemizers benefit), growth is tax-free, and qualified medical withdrawals are tax-free. No other account combines all three. 2026 contribution limits are $4,300 (self-only) and $8,550 (family), with an additional $1,000 catch-up at age 55+. Eligibility requires enrollment in a qualifying High Deductible Health Plan (HDHP), defined for 2026 as a plan with at least $1,650 deductible / $8,300 out-of-pocket maximum for self-only coverage and $3,300 / $16,600 for family. Disqualifying coverage includes general-purpose FSAs, Medicare enrollment, being a dependent on another return, and coverage under a non-HDHP (including a spouse's plan). Qualified medical expenses (per IRS Pub 502) include doctor visits, prescriptions, dental, vision, mental health, long-term care insurance premiums, COBRA premiums, and Medicare Part B/D premiums after age 65. After age 65, non-medical withdrawals are taxed as ordinary income (like a traditional IRA) but with no 20% penalty (the penalty only applies before 65). The optimal HSA strategy is to contribute maximum, invest aggressively, pay current medical expenses out-of-pocket, and reimburse yourself decades later from the HSA tax-free, using the HSA as a stealth retirement account. HSA balances roll over indefinitely (no "use it or lose it" like FSAs) and are portable across employers.