What is a health savings account (HSA)?

A health savings account (HSA) serves as a tax-advantaged savings vehicle specifically designed to help individuals set aside funds for qualified medical expenses. The unique benefit of an HSA is that contributions made to the account are tax-deductible, meaning they can reduce an individual's taxable income for the year. Additionally, funds in an HSA grow tax-free, and withdrawals used for eligible medical expenses are also tax-exempt. This triple tax advantage makes HSAs a powerful tool for managing healthcare costs, as they encourage individuals to save for out-of-pocket medical expenses while providing tax benefits.

On the other hand, the other options describe different financial instruments or vehicles that do not align with the specific purpose and tax advantages associated with HSAs. A tax-exempt retirement account typically refers to accounts like Roth IRAs, and an investment account focused on health-related stocks does not fit the description or function of an HSA. Similarly, a type of insurance policy for long-term care offers coverage for different expenses and does not serve the purpose of saving for medical costs directly. Therefore, the definition of a health savings account as a tax-advantaged savings account for medical expenses stands correct.