What are health savings accounts (HSAs)?

Health Savings Accounts (HSAs) are specifically designed to help individuals save money for qualified medical expenses on a tax-advantaged basis. Contributions made to an HSA are tax-deductible, reducing the individual's taxable income for the year. Additionally, the funds in the account can grow tax-free, which means that as long as the money is used for eligible medical expenses, neither the earnings on these savings nor withdrawals for such expenses incur any tax.

The key purpose of HSAs is to encourage people to save for healthcare costs, which aligns with the correct answer about tax-advantaged savings dollars that grow tax-free for medical expenses. This strategy not only helps individuals manage their healthcare costs more efficiently but also encourages them to take a proactive approach toward future medical expenses.

The other choices do not accurately describe HSAs, as they focus on retirement savings, education funding, or suggest that the savings incur tax penalties upon withdrawal, which is not applicable to HSAs when funds are used correctly. HSAs uniquely combine tax benefits with health-related financial planning, making them a valuable tool in the management of healthcare expenses.