Health Savings Accounts

Health Savings Accounts (HSAs) are tax-advantaged accounts for paying qualified medical expenses. Often called the account with a "triple tax advantage".

Who Is Eligible to Contribute?

Must be enrolled in a High-Deductible Health Plan (HDHP) to contribute. Cannot contribute once enrolled in Medicare.

2026 HDHP definition:

What Are the Contribution Limits?

What Is the Triple Tax Advantage?

The "triple tax advantage" is the exam's defining phrase for HSAs:

1. Contributions are pre-tax (payroll) or above-the-line deductible (if made directly)
2. Earnings grow tax-free
3. Qualified distributions are tax-free

Think of it this way: Money goes in tax-free, grows tax-free, and comes out tax-free (for medical expenses). No other account type offers all three benefits at once.

What Medical Expenses Qualify?

• Deductibles, co-pays, and prescriptions
• Dental care and vision care
• Certain over-the-counter items

Insurance premiums: as a general rule, HSA funds cannot pay health insurance premiums. Five exceptions are qualified:

• COBRA continuation coverage premiums
• Health coverage premiums while receiving unemployment compensation
• Medicare premiums (Part A, B, or D) once the account holder is age 65 or older (Medigap/Medicare supplement premiums do not qualify)
• Long-term care insurance premiums, subject to IRS age-based dollar limits (not the full premium)
• Direct primary care service arrangements

Exam Tip: Gotchas

• Deductibles and co-pays are not premiums. They are always qualified. Premiums are excluded by default; only the five exceptions above are qualified.

What Happens to Non-Qualified Withdrawals?

• Before age 65: Ordinary income tax + 20% penalty
• After age 65: Ordinary income tax only, no penalty. Effectively functions like a Traditional IRA for non-medical expenses.

Exam Tip: Gotchas

• After age 65, non-medical HSA withdrawals = taxable income only, no penalty. Same tax treatment as a Traditional IRA.

Is an HSA Portable?

• Account is portable: belongs to the individual, not the employer; stays with the account holder if they change jobs
• HSA funds roll over indefinitely; no "use it or lose it" rule (unlike Flexible Spending Accounts)
• Can invest HSA funds in stocks, bonds, and mutual funds (similar to a retirement account)
• Cannot contribute to an HSA once enrolled in Medicare

How Does an HSA Compare to an FSA?

Exam Tip: Gotchas

• HSA triple tax = pre-tax contributions + tax-free growth + tax-free medical withdrawals. No other account type offers all three benefits simultaneously.
• An FSA is not a zero-benefit or one-benefit account. It shares two of the HSA's three tax benefits (pre-tax contributions and tax-free reimbursement for qualified medical expenses). The one it lacks is tax-free growth, since FSA balances are held as cash and are not invested.
• FSA is tied to the employer. HSA is portable and belongs to the individual.

What Should You Check on Exam Day?

• HSA eligibility requires HDHP enrollment; contributions stop once the account holder enrolls in Medicare.
• The triple tax advantage is unique to HSAs: pre-tax or above-the-line-deductible contributions, tax-free growth, and tax-free qualified withdrawals.
• Deductibles and co-pays are always qualified expenses; insurance premiums are excluded by default except for the five listed exceptions (COBRA, unemployment-period coverage, Medicare Part A/B/D at 65+, limited long-term care premiums, and direct primary care service arrangements).
• Non-qualified withdrawals before 65 cost ordinary income tax plus a 20% penalty; after 65 the penalty disappears and the account is taxed like a Traditional IRA.
• HSA funds roll over indefinitely and stay with the individual across job changes; an FSA is generally use-it-or-lose-it and tied to the employer.
• An FSA has two of the HSA's three tax benefits (pre-tax contributions, tax-free qualified withdrawals), not one; the growth leg is what it lacks.