Glossary
HSA (Health Savings Account)
An HSA (health savings account) is a tax-advantaged account, available to people covered by a qualifying high-deductible health plan, whose contributions, growth, and withdrawals for qualified medical expenses are all free of federal tax.
That triple tax benefit is unique — no other account offers deductible money in, tax-free growth, and tax-free money out. Balances roll over year to year, the account is portable between employers, and after 65 non-medical withdrawals are allowed with ordinary income tax (like a traditional IRA).
Why it matters in practice
Used only as a spending account, an HSA is a modest tax break. Invested and left to compound — paying current medical costs out of pocket where feasible — it becomes a stealth retirement account for the largest predictable retirement expense: healthcare.
In California
California does not conform to the federal HSA rules: the state gives no deduction for HSA contributions and taxes the account's interest, dividends, and capital gains as income. The federal benefits remain, but California residents should expect state tax on HSA earnings.
Related terms: Tax-Deferred · Adjusted Gross Income (AGI) · Compound Interest · Traditional IRA