What is the penalty for using HSA funds?

Health Savings Accounts (HSAs) are a great way to save for medical expenses and enjoy tax benefits. However, it's important to understand the rules surrounding HSA funds to avoid penalties. If you use HSA funds for non-qualified expenses, you may face penalties.

The penalty for using HSA funds for non-qualified expenses is twofold:

• Income Tax: The amount you withdraw for non-qualified expenses will be included in your taxable income for that year. You will also have to pay an additional 20% tax on the withdrawn amount.
• Penalty: In addition to the 20% tax, if you use HSA funds for non-qualified expenses before the age of 65, you will face an additional 10% penalty.

It's important to use HSA funds only for qualified medical expenses to avoid penalties. Qualified medical expenses include a wide range of services and products related to healthcare, but there are some exclusions such as cosmetic procedures.

Remember, HSA funds are meant to be used for healthcare costs, and using them for other purposes can result in tax consequences. Be sure to keep receipts and documentation for all HSA expenses to prove that they were for qualified medical purposes.

It's crucial to be aware of the penalties associated with using Health Savings Account (HSA) funds improperly. Misusing these funds for non-qualified expenses not only incurs additional taxes but can significantly impact your financial planning.