What Happens to Money in My HSA After I Am No Longer Eligible?

Have you ever wondered about the fate of the money in your HSA after you are no longer eligible? Let's delve into this topic to understand what happens to your HSA funds in such situations.

Health Savings Accounts (HSAs) are a great way to save for medical expenses while enjoying tax benefits. However, the rules governing HSAs can sometimes be confusing, especially when it comes to what happens to the funds in your account if your eligibility changes.

When you are no longer eligible for an HSA, whether due to changes in your health insurance coverage or employment status, there are a few scenarios that can unfold regarding your HSA funds:

1. If you are no longer eligible due to a change in health insurance coverage, such as switching to a non-HDHP (High Deductible Health Plan), you can no longer contribute to your HSA but can still use the funds for qualified medical expenses. The money in your HSA remains yours, and you can continue to withdraw it tax-free for eligible healthcare costs.
2. If you are no longer eligible due to a change in employment status, such as leaving a job with an HSA-qualified HDHP, you have several options for your HSA funds:
• You can keep the HSA open and continue to use the funds for qualified medical expenses.
• You can use the remaining balance to pay for COBRA premiums, long-term care premiums, or Medicare premiums.
• You can withdraw the funds for non-medical expenses, but they will be subject to income tax and a 20% penalty if you are under 65 (the penalty is waived for those 65 and older).

It's essential to be aware of your options and any tax implications when dealing with HSA funds after losing eligibility. Keeping track of your HSA balance and understanding the rules can help you make informed decisions about how to manage your healthcare savings.

Wondering about your HSA funds after you lose eligibility? The good news is that while you can't contribute anymore, your money is still yours to use for qualified medical expenses.