Question

Qualified payments for tax-free HSA withdrawals include:?

1) Medical expenses
2) Groceries
3) Entertainment expenses
4) Travel expenses

Answer 1

Qualified payments for tax-free HSA withdrawals are exclusively for medical expenses, such as doctor's visits and prescriptions, not for groceries, entertainment, or travel. HSAs differ from Roth IRAs, which offer tax free growth and no tax on earnings, without required minimum withdrawals.

Step-by-step explanation:

Qualified payments for tax-free Health Savings Account (HSA) withdrawals include medical expenses only. These are expenses that are primarily for the prevention or alleviation of a physical or mental defect or illness. Examples of qualified medical expenses include doctor's office visits, dental care, vision care, prescription medications, and medical equipment.

Expenses such as groceries, entertainment expenses, and travel expenses do not qualify for tax-free withdrawals from an HSA. It is important to use HSA funds exclusively for eligible medical expenses to avoid taxes and penalties.

While HSAs provide tax-free withdrawals for qualified medical expenses, a Roth IRA offers tax free growth and you owe no tax at all on earnings as they accumulate or when you withdraw. Additionally, Roth IRAs do not have required withdrawals and have limitations on maximum contributions per year.