A health savings account (HSA) is a special tax-advantaged savings account similar to a traditional Individual Retirement Account (IRA), but it's designated for medical expenses. An HSA allows you to pay for eligible health care expenses and save for future qualified medical and retiree health care expenses on a tax-favored basis.

HSAs provide triple-tax advantages: contributions, investment earnings, and qualified distributions all are exempt from federal income tax, FICA (Social Security and Medicare) tax, and state income taxes (for most states).

Unused HSA dollars roll over from year to year, making HSAs a convenient and easy way to save and invest for future medical expenses. You own your HSA at all times and can take it with you when you change medical plans, change jobs, or retire. Funds in the account not needed for near-term expenses may be able to be invested, providing the opportunity for funds to grow. Investment options include money market accounts, mutual funds, etc. Check with your bank to find out your options.

To be eligible to set up an HSA and to make contributions, you must be covered by a qualified “high-deductible health plan”, or HDHP. Most of the time, health insurance plans without a copay are HSA-eligible.