What Happens If I Close Out My HSA for Non-Medical Expenses?

As you consider the implications of closing your HSA for non-medical expenses, it's important to understand the potential consequences. Health Savings Accounts (HSAs) provide individuals with tax advantages when used for qualified medical costs, but using the funds for non-qualified expenses comes with penalties and tax implications.

When you close out your HSA for non-medical expenses, here's what you can expect:

• You will owe income tax on the withdrawn amount
• If you are under 65, you will also face an additional 20% penalty
• The withdrawn funds can only be used tax-free for qualified medical expenses

Additionally, closing your HSA for non-medical expenses can negate the benefits of the account, such as tax-deferred growth and tax-free withdrawals for medical expenses.

When you choose to close out your HSA and withdraw the funds for non-medical expenses, it's crucial to recognize the repercussions that come with this decision. Not only will you face income tax on the amount withdrawn, but if you're under the age of 65, you'll also incur a hefty 20% penalty on top of that. This penalty is in place to discourage individuals from using their Health Savings Accounts inappropriately.