Question

Health Savings Accounts (HSAs) have lower ____ than IRAs and are funded with _______ contributions.

A) Contribution limits, deductible.
B) Contribution limits, after-tax.
C) Deductible limits, pre-tax.
D) Tax rates, deductible.

Answer 1

HSAs have lower contribution limits than IRAs and are funded with pre-tax contributions, offering different tax benefits compared to retirement accounts like Traditional and Roth IRAs.

Step-by-step explanation:

Health Savings Accounts (HSAs) have lower contribution limits than IRAs and are funded with pre-tax contributions. Therefore, the correct answer to the student's question is C) Deductible limits, pre-tax. HSAs serve as a tool for healthcare cost saving and are very different from Traditional and Roth IRAs which are meant for retirement savings. Unlike the IRAs, where the Traditional version is tax-deferred, meaning that you pay taxes upon withdrawal, and the Roth IRA is funded with after-tax money with tax-free withdrawal at retirement, HSAs are intended primarily to offset healthcare costs and have different contribution rules and tax advantages.