Tax TreatmentQuestion 231 of 716
Which statement BEST describes the federal tax treatment of a Health Savings Account (HSA)?
a.Contributions are made with after-tax dollars, growth is taxable each year, and qualified withdrawals are taxed at long-term capital gain rates
b.Contributions are deductible (or pre-tax through payroll), growth is tax-deferred, and qualified medical withdrawals are tax-free
c.Contributions are excluded from income, growth inside the account is tax-deferred, but every withdrawal is later taxed as ordinary income
d.The account is taxed annually on its earnings, contributions are never deductible, and qualified medical withdrawals receive a 10% credit
Explanation
An HSA under IRC §223 provides the well-known triple tax advantage: deductible (or pre-tax) contributions, tax-deferred growth inside the account, and tax-free distributions when used for qualified medical expenses. Non-qualified withdrawals are taxable as ordinary income plus a 20% penalty if taken before age 65.
Law Reference: IRC §223This topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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