Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-advantaged savings account available to individuals enrolled in a High Deductible Health Plan (HDHP). HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. 2025 contribution limits are $4,300 (self) and $8,550 (family).
Exam Tip
HSA = triple tax advantage. Must have HDHP. 2025 limits: $4,300 (self), $8,550 (family). No use-it-or-lose-it. Cannot contribute once on Medicare. 20% penalty for non-qualified withdrawals under 65.
What is an HSA?
An HSA provides a triple tax advantage for medical expenses and is available only to those with a qualifying High Deductible Health Plan (HDHP).
2025 HSA Contribution Limits
| Coverage | Contribution Limit | Catch-Up (55+) |
|---|---|---|
| Self-only | $4,300 | +$1,000 |
| Family | $8,550 | +$1,000 |
2025 HDHP Requirements
| Requirement | Self-Only | Family |
|---|---|---|
| Minimum deductible | $1,650 | $3,300 |
| Maximum out-of-pocket | $8,300 | $16,600 |
Triple Tax Advantage
| Benefit | Details |
|---|---|
| Deductible contributions | Above-the-line deduction (reduces AGI) |
| Tax-free growth | Interest and investment gains untaxed |
| Tax-free withdrawals | No tax on qualified medical expenses |
Key HSA Rules
| Rule | Details |
|---|---|
| No use-it-or-lose-it | Funds roll over indefinitely |
| Portable | You keep it when changing jobs |
| After age 65 | Non-medical withdrawals taxed as income (no penalty) |
| Non-qualified withdrawal (under 65) | Income tax + 20% penalty |
Exam Alert
HSA = triple tax advantage (deduction + tax-free growth + tax-free withdrawal). Must have HDHP. No use-it-or-lose-it. Contributions are above-the-line deductions. After 65, non-medical withdrawals are penalty-free but taxed as ordinary income. Cannot contribute if enrolled in Medicare.
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Above-the-Line Deduction
Above-the-line deductions are adjustments subtracted from gross income to arrive at adjusted gross income (AGI), available to all taxpayers regardless of whether they itemize. Common examples include educator expenses, HSA contributions, self-employed health insurance, student loan interest, and IRA contributions.
Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is gross income minus above-the-line deductions (adjustments to income). AGI is the key threshold used to determine eligibility for many tax credits, deductions, and phase-outs on Form 1040.
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