A client is enrolled in a High Deductible Health Plan (HDHP) and contributes to a Health Savings Account (HSA). Which of the following statements is TRUE regarding an HSA?
- AContributions to an HSA are tax-deductible, but withdrawals for qualified medical expenses are taxable.
- BAn HSA is owned by the individual and contributions can be made by the individual, an employer, or both.
- CHSAs are only available to individuals enrolled in Medicare.
- DFunds in an HSA must be used by the end of the calendar year or they are forfeited.
Show answer & explanationAnswer & explanation
Correct answer: B. An HSA is owned by the individual and contributions can be made by the individual, an employer, or both.
An HSA is a tax-advantaged savings account owned by the individual, allowing contributions from various sources. It offers a 'triple tax advantage': tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Funds roll over year-to-year and are not forfeited, and they are available to those with HDHPs, not just Medicare enrollees.
Why the other options are wrong
- A. Withdrawals for qualified medical expenses from an HSA are tax-free, not taxable.
- C. HSAs are available to individuals covered by a High Deductible Health Plan (HDHP), not exclusively to Medicare enrollees.
- D. HSA funds carry over from year to year; they are not forfeited at year-end.
Health Savings Account (HSA)
A tax-advantaged savings account available to individuals enrolled in a High Deductible Health Plan (HDHP), used for qualified medical expenses. It offers tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical costs.
- Paired with HDHP.
- Triple tax advantage.
- Funds roll over annually.
Memory trick: HSA: High Savings Advantage!