New York Child Abuse Identification and Reporting Practice Exam

Which of the following is a benefit of a health savings account (HSA)?

1. Unused funds expire at the end of the year

2. Contributions are taxed as income

3. Funds can be rolled over year after year

4. Can only be used during employment

The correct answer is: Funds can be rolled over year after year

The correct answer highlights a significant advantage of health savings accounts (HSAs). Funds in an HSA can roll over from one year to the next, meaning that any unspent money does not expire at the end of the year. This feature enables account holders to save for future medical expenses and allows for long-term accumulation of savings, offering flexibility and financial security in managing healthcare costs. This characteristic is particularly beneficial because it allows individuals to take their time in utilizing the funds, ensuring that they can address larger expenses as they arise without the pressure of losing their savings. It also encourages people to contribute to their HSAs, knowing that their funds will remain available for future healthcare needs rather than being subject to annual expiration. Other options do not reflect the advantages associated with HSAs properly. For example, unused funds expiring at the end of the year would deter savings and reduce the account's effectiveness. Taxing contributions as income would make HSAs less appealing, as one of their primary benefits is that contributions are made with pre-tax income. Additionally, the ability to use the funds is not limited to periods of employment, which allows individuals to maintain access to their savings even after changing jobs or retiring.