Georgia Navigator Practice Exam

What is a common characteristic of both HSAs and MSAs?

1. They both fund routine medical costs tax-free

2. They have the same contribution limits

3. They only apply to elderly individuals

4. They do not allow employer contributions

The correct answer is: They both fund routine medical costs tax-free

Both Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) share the characteristic of allowing individuals to fund routine medical costs with tax-free contributions. This means that the money deposited into these accounts can be used to pay for qualified medical expenses without being subjected to federal income tax. This tax advantage is a significant incentive for individuals to save for healthcare costs. In addition to providing tax-free growth on contributions, the funds in HSAs and MSAs can also be withdrawn tax-free for eligible medical expenses. This feature emphasizes their role in promoting savings specifically for health-related expenses. While HSAs and MSAs do have other differing features, such as contribution limits and eligibility criteria, the shared ability to provide tax-free funding for routine medical costs is a critical and defining trait of both accounts.