A Health Savings Account (HSA) is the only account in the US tax system that offers a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
For 2025, the contribution limits are $4,300 for individual coverage and $8,550 for family coverage. If you are 55 or older, you can contribute an additional $1,000 as a catch-up contribution.
To be eligible, you must be enrolled in a high-deductible health plan (HDHP). For 2025, this means a plan with a deductible of at least $1,650 for self-only coverage or $3,300 for family coverage.
The tax savings are significant. If you contribute the full $4,300 as a single filer in the 22% bracket, you save $946 in federal income tax plus $329 in FICA (if contributed through payroll deduction). If your state has an income tax, you save on that too (except in California, New Jersey and Alabama, which do not recognize HSA deductions).
The secret power of HSAs is that there is no requirement to spend the money on medical expenses in the current year. You can invest your HSA balance in stocks and bonds, let it grow tax-free for decades, and use it in retirement. After age 65, you can withdraw HSA funds for any purpose — you pay income tax but no penalty (just like a Traditional IRA). For medical expenses at any age, withdrawals are completely tax-free.
Many financial advisors consider the HSA to be even better than a 401(k) because of the triple tax benefit. The optimal strategy is to max out your HSA, pay medical expenses out of pocket today, save the receipts, and let the HSA grow. You can reimburse yourself for those past medical expenses tax-free at any point in the future — even decades later.
The combination of a maxed 401(k) ($23,500) and a maxed HSA ($4,300) reduces your taxable income by $27,800. At the 22% bracket, that is $6,116 in federal tax savings alone.
Use our US take-home pay calculator to see how 401(k) contributions affect your take-home pay.