What purpose does the Health Savings Account (HSA) serve for its holders?

The Health Savings Account (HSA) primarily serves to allow individuals with high-deductible health plans to save money for qualified medical expenses. Contributions made to an HSA are tax-deductible, and the funds within the account grow tax-free, which provides a significant tax advantage. This means that holders can use the money saved in the HSA for a wide range of healthcare-related costs, such as deductibles, copayments, and certain other expenses outlined by the IRS.

Using an HSA specifically for healthcare-related expenses is beneficial because it enables individuals to manage their out-of-pocket costs associated with high-deductible plans effectively. When individuals use their HSA funds for qualified medical expenses, they are not taxed on those distributions, adding to the account's appeal as a tool to handle health costs.

Additionally, HSAs have the potential to serve as a long-term savings mechanism for healthcare expenses in retirement, as unused funds can roll over year after year, unlike typical Flexible Spending Accounts (FSAs). This aspect emphasizes their dedicated purpose in the context of healthcare rather than being a general savings account, an investment vehicle for profit, or a method for tax evasion.