What Happens If I Withdraw HSA Money and Don't Use It on Medical Expenses?

Health Savings Accounts (HSAs) are a great way to save for medical expenses while enjoying tax advantages. But what happens if you withdraw HSA money and don't use it on medical expenses? Let's dive into the consequences of such actions.

When you withdraw money from your HSA for non-qualified expenses, you may face financial penalties. The IRS imposes a 20% penalty on the amount withdrawn for ineligible expenses, in addition to the regular income tax you'll owe on that amount.

It's important to keep in mind that the whole point of an HSA is to save for medical expenses tax-free. If you choose to use the funds for non-medical purposes, you're essentially losing out on the tax benefits and incurring penalties.

However, there are some exceptions to using HSA funds for non-medical expenses without penalties, such as reaching age 65 or becoming disabled. In those cases, you'll only owe income tax on the amount withdrawn, without the additional 20% penalty.

While HSAs provide wonderful tax advantages for medical savings, it's crucial to understand the consequences of withdrawing money for non-medical expenses. If you make such a withdrawal, not only will you incur the typical income tax on that amount, but you'll also face a hefty 20% penalty from the IRS, diminishing your savings significantly.