Difficulty: Easy

Average Score: 77%

Under federal law, a tax exempt Health Savings Account can only be opened for an individual who is:

Rationale

Under federal law, a tax exempt Health Savings Account can only be opened for an individual who is covered by a qualified High Deductible Health Plan.

To qualify for a Health Savings Account (HSA), individuals must be enrolled in a qualified High Deductible Health Plan (HDHP), which allows them to contribute pre-tax dollars to save for eligible medical expenses. This requirement ensures that the tax benefits of an HSA are linked to the specific type of health insurance coverage.

A (covered by a qualified High Deductible Health Plan) CORRECT

This choice accurately represents the federal requirement for opening an HSA. Individuals must have an HDHP to be eligible for an HSA, making this the essential criterion for establishing one.

B (covered by Long Term Care Insurance) YOUR ANSWER

Long Term Care Insurance does not meet the criteria for HSA eligibility, as HSAs are specifically designed for individuals with a qualified HDHP. While Long Term Care Insurance serves a distinct purpose, it does not provide the necessary health coverage required to establish an HSA.

C (entitled to Medicare benefits) YOUR ANSWER

Individuals who are entitled to Medicare benefits are not eligible to contribute to an HSA. Once an individual enrolls in Medicare, they can no longer be covered by an HDHP, which disqualifies them from opening or contributing to an HSA.

D (eligible to be claimed as a dependent on another person's tax return) YOUR ANSWER

Being eligible to be claimed as a dependent does not automatically qualify an individual for an HSA. The key factor is the type of health insurance coverage, specifically the requirement of being covered by a qualified HDHP, rather than the individual's dependency status on a tax return.

Conclusion

To open a tax-exempt Health Savings Account under federal law, an individual must be covered by a qualified High Deductible Health Plan. This provision ensures that only those with specific health insurance coverage can benefit from the tax advantages associated with HSAs, while other options like Long Term Care Insurance, Medicare benefits, or dependency status do not fulfill the necessary criteria.

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