Certified Financial Management Specialist Practice Exam

Health Savings Accounts (HSAs) are primarily used for which purpose?

1. Retirement planning

2. Tax-exempt home purchases

3. Tax-advantaged medical expenses

4. Investment in municipal bonds

The correct answer is: Tax-advantaged medical expenses

Health Savings Accounts (HSAs) are specifically designed to help individuals save money for qualified medical expenses on a tax-advantaged basis. Contributions made to an HSA are tax-deductible, which lowers the individual's taxable income. Additionally, the interest or investment earnings within the account grow tax-free. When funds are withdrawn for eligible medical expenses, those withdrawals are also tax-free. This triple-tax advantage makes HSAs particularly beneficial for managing healthcare costs, especially for those who wish to cover expenses like doctor visits, prescription medications, and other qualifying medical services without incurring additional tax burdens. In the context of the other options, while retirement planning is a valid concern for many individuals, HSAs are not primarily aimed at retirement; they are specifically structured for health expenditures. Tax-exempt home purchases are not related to HSAs, as these accounts are dedicated to medical expenses, not real estate. Investment in municipal bonds is unrelated to HSAs, as these investments pertain to a different aspect of financial planning and do not involve health-related spending. Therefore, the main purpose of HSAs clearly centers around facilitating tax-advantaged savings for medical expenses.