Is Money Taken from a Health Savings Account (HSA) Taxed?

Many people wonder whether money taken from a Health Savings Account (HSA) is taxed. The good news is that withdrawals for qualified medical expenses are tax-free! This feature makes HSAs a great way to save for healthcare costs and reduce your taxable income.

Contributions to an HSA are made with pre-tax dollars, meaning you don't pay taxes on the money you put into the account. Additionally, any interest or investment gains within the HSA are also tax-free.

However, if you use the funds for non-medical expenses before the age of 65, you will be subject to income tax and a 20% penalty. After age 65, you can use the money for non-medical expenses penalty-free, but income tax will still apply.

It's essential to keep track of your withdrawals and ensure they are for qualified medical expenses to enjoy the tax benefits of an HSA fully.

Understanding the tax implications of your Health Savings Account (HSA) is crucial for making the most of this powerful financial tool. Not only are withdrawals for qualified medical expenses tax-free, but the contributions you make are also with pre-tax dollars, which can lead to significant savings on your tax bill each year!