Definition
A Health Savings Account is a tax-advantaged savings vehicle available to individuals enrolled in a High-Deductible Health Plan (HDHP). The HSA offers a triple tax benefit that no other account type matches: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
How It Works
For 2025, contribution limits are $4,300 for individual coverage and $8,550 for family coverage, with an additional $1,000 catch-up for those 55 and older. Contributions can be made by the individual, the employer, or both.
Unlike Flexible Spending Accounts (FSAs), HSA funds carry over indefinitely. There is no "use it or lose it" requirement. The account can be invested in stocks, bonds, or other assets, allowing long-term compounding.
After age 65, non-medical withdrawals are taxed as ordinary income (no penalty), effectively converting the HSA into a supplemental traditional IRA. Medical withdrawals remain tax-free at any age.
When Entrepreneurs Use This
- Healthy high-income earners: Maximize contributions and invest for long-term growth rather than spending on current medical expenses
- Retirement supplementation: Build a tax-free medical expense fund for retirement healthcare costs
- Business owners with HDHPs: Employer contributions are deductible to the business and tax-free to the employee
Dew Wealth Perspective
The HSA is one of the most overlooked tax-advantaged accounts. For entrepreneurs who can afford to pay current medical expenses out of pocket, maximizing HSA contributions and investing the balance creates a powerful long-term compounding vehicle with a tax treatment superior to both traditional and Roth IRAs for medical expenses.