What is the purpose of a Health Savings Account (HSA)?

A Health Savings Account (HSA) is specifically designed to encourage individuals to save for qualifying medical expenses while offering significant tax advantages. Contributions made to an HSA are generally tax-deductible, which means they reduce the individual's taxable income. Additionally, the funds that accumulate within the account can grow tax-free, and withdrawals for qualified medical expenses are not subject to taxes. This triple tax advantage makes HSAs an effective financial tool for managing healthcare costs while incentivizing individuals to save for future medical needs.

The other options do not accurately reflect the primary function of an HSA. For example, HSAs are not intended for paying insurance premiums directly; they are used to cover out-of-pocket medical expenses. While funds in an HSA can be utilized for a wide range of medical costs, they are not structured for saving for non-medical expenses or specifically for funding retirement plans, although leftover funds can be used more broadly once an individual reaches retirement age. Overall, the primary purpose of an HSA centers on facilitating tax-advantaged savings for healthcare-related expenditures, making it a unique and beneficial aspect of health care financing.