What is the function of a health savings account (HSA)?

What is the function of a health savings account (HSA)?

• A. To pay life insurance premiums
• B. To save for retirement expenses
• C. To accumulate funds for medical expenses on a tax-advantaged basis
• D. To invest in stocks and bonds

Answer: (C)

A health savings account (HSA) is specifically designed to accumulate funds for medical expenses in a tax-advantaged way. Individuals can contribute money to an HSA and use these funds to pay for qualified medical expenses, such as deductibles, copayments, and other out-of-pocket healthcare costs. Contributions to an HSA are typically tax-deductible, and the funds can grow without being taxed as long as they are used for eligible medical expenses. This unique tax treatment makes HSAs a powerful tool for managing healthcare costs, as they encourage saving for medical expenses while also providing tax benefits. By allowing contributions to be made with pre-tax dollars and offering tax-free withdrawals for qualified medical expenditures, HSAs not only assist individuals in managing current healthcare expenses but also promote saving for future medical needs.

A health savings account (HSA) is specifically designed to accumulate funds for medical expenses in a tax-advantaged way. Individuals can contribute money to an HSA and use these funds to pay for qualified medical expenses, such as deductibles, copayments, and other out-of-pocket healthcare costs. Contributions to an HSA are typically tax-deductible, and the funds can grow without being taxed as long as they are used for eligible medical expenses.

This unique tax treatment makes HSAs a powerful tool for managing healthcare costs, as they encourage saving for medical expenses while also providing tax benefits. By allowing contributions to be made with pre-tax dollars and offering tax-free withdrawals for qualified medical expenditures, HSAs not only assist individuals in managing current healthcare expenses but also promote saving for future medical needs.