Medical Expense✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly describes a Health Savings Account (HSA)?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An HSA is a tax-advantaged account paired with a high-deductible health plan (HDHP): contributions are tax-deductible (or made pretax through an employer), earnings grow tax-deferred, and distributions for qualified medical expenses are tax-free. Unlike an FSA, the balance rolls over from year to year and the account belongs to the individual — it is portable.
Why the other options are wrong
- B) Forfeiting unused funds at year-end is the FSA rule, not the HSA rule; HSA balances carry over indefinitely.
- C) Individuals may open HSAs on their own as long as they are enrolled in a qualifying HDHP and are not otherwise disqualified.
- D) Non-medical withdrawals before age 65 are subject to income tax plus a 20% penalty (IRC Section 223(f)(4)(A)) — they are not penalty-free.
Memory hook
HSA = the savings account that follows you for life. FSA = use it or lose it. H never forgets; F always confiscates.