What are spending accounts like FSAs and HSAs used for?

Spending accounts such as Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are designed specifically to allow individuals to set aside pre-tax money for qualified healthcare expenses. Contributions to these accounts are made before taxes are deducted from your paycheck, reducing your overall taxable income. This tax advantage makes these accounts highly beneficial for managing healthcare costs, covering a range of expenses such as doctor visits, prescription medications, and other eligible medical expenses.

These accounts are not used for covering insurance premiums, funding retirement accounts, or investing in health technology, which distinguishes option B as the most accurate representation of their primary function. FSAs typically allow funds to be used within the calendar year, while HSAs offer the advantage of roll-over funds and can be used for qualified expenses even into retirement, further enhancing their appeal for healthcare-related financial planning.