Which of the following is an example of a tax-advantaged account?

Which of the following is an example of a tax-advantaged account?

• A. Checking account
• B. Health Savings Account (HSA)
• C. Credit card account
• D. Mortgage account

Answer: (B)

A Health Savings Account (HSA) is an excellent example of a tax-advantaged account. HSAs are specifically designed to help individuals save for medical expenses with significant tax benefits. Contributions made to an HSA are tax-deductible, which means they can reduce your taxable income for the year. Additionally, any interest or investment gains on the funds in an HSA grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This triple tax advantage makes HSAs a powerful tool for managing healthcare costs while also providing potential savings on taxes. In contrast, the other options do not offer similar tax benefits. For instance, a checking account, while a fundamental component of personal finance, does not have any tax advantages associated with it. Similarly, a credit card account primarily facilitates spending and does not provide any tax benefits; interest paid on credit card balances is not tax-deductible for personal purchases. Lastly, a mortgage account, while it may offer some tax deductions related to mortgage interest, is not considered a tax-advantaged account in the same way an HSA is, because it does not offer tax-free growth or tax-free withdrawals for specific purposes.

A Health Savings Account (HSA) is an excellent example of a tax-advantaged account. HSAs are specifically designed to help individuals save for medical expenses with significant tax benefits. Contributions made to an HSA are tax-deductible, which means they can reduce your taxable income for the year. Additionally, any interest or investment gains on the funds in an HSA grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This triple tax advantage makes HSAs a powerful tool for managing healthcare costs while also providing potential savings on taxes.

In contrast, the other options do not offer similar tax benefits. For instance, a checking account, while a fundamental component of personal finance, does not have any tax advantages associated with it. Similarly, a credit card account primarily facilitates spending and does not provide any tax benefits; interest paid on credit card balances is not tax-deductible for personal purchases. Lastly, a mortgage account, while it may offer some tax deductions related to mortgage interest, is not considered a tax-advantaged account in the same way an HSA is, because it does not offer tax-free growth or tax-free withdrawals for specific purposes.