Which account allows you to save for medical expenses with tax advantages while reducing taxable income?

The account designed specifically to save for medical expenses while offering tax advantages and reducing taxable income is the Health Savings Account (HSA). An HSA allows individuals to set aside pre-tax money for qualified medical expenses, which in turn lowers their taxable income. Any contributions made to an HSA are tax-deductible, and the funds can grow tax-free. When used for qualified medical expenses, withdrawals are also tax-free.

This account is particularly beneficial for individuals who have high-deductible health plans (HDHPs) because it not only helps in managing out-of-pocket expenses but also provides a way to save for healthcare costs while enjoying tax benefits. With this triple tax advantage—deduction on contributions, tax-free growth, and tax-free withdrawals for qualified expenses—HSAs are effective tools for financial planning related to healthcare.

While Flexible Spending Accounts (FSAs) and Medical Savings Accounts (MSAs) also serve to manage healthcare expenses, they do not provide the same level of tax benefits or allow for the same rollover or growth potential as HSAs. Retirement accounts, on the other hand, are primarily focused on long-term retirement savings rather than immediate medical expenses.