What is the tax implication for contributions made to a health savings account (HSA)?

Contributions made to a health savings account (HSA) are considered tax deductible, which means they can be subtracted from your taxable income when you file your taxes. This tax advantage encourages individuals to save for their healthcare expenses. When you contribute to an HSA, you don’t pay federal income tax on the money you set aside for qualifying medical expenses, effectively reducing your taxable income for the year.

Furthermore, the funds in an HSA can grow tax-free, and withdrawals for eligible medical expenses are also tax-free, providing a significant tax benefit over time. This structure is designed to promote saving for health expenses, making HSAs a valuable financial tool for many individuals. As a result, the contributions you make reduce your taxable income, which is the key reason this option is the correct answer.