Question

5. All of the following statements regarding a Health Savings Account are true except:

a.	Contributions made to the HSA by the plan participant are tax-deductible as an adjustment to gross income (above the line).

b.	Distributions from the HSA to pay for medical expenses are excluded from income.

c.	An employer makes contributions to an HSA on behalf of an employee, and the contribution limits are not exceeded, the employer contribution is not included in the taxable income of the employee.

d.	A 10% penalty applies to nonmedical expense withdrawals prior to age 65.

Answer 1

20% penalty applies to non medical expense withdrawal prior to 65 so statement D is false which specifies that only 10% penalty is applicable to non medical expense petrol price to age 65.

Rest of the statements are true because contribution made to the HSA by plan participants or distribution from HSA to medical expenses are all excluded from income and employer is also allowed to make contribution towards HSA which is not taxable.

Correct answer is option (D).