What is the Penalty for Withdrawing HSA Funds?

Many individuals use Health Savings Accounts (HSAs) to save for medical expenses and enjoy tax benefits. However, it's essential to understand the rules and regulations regarding withdrawals to avoid penalties.

When it comes to withdrawing HSA funds, you must be aware of the penalties involved. If you withdraw funds for non-qualified medical expenses before the age of 65, you will incur a 20% penalty on the amount withdrawn.

It's important to note that after the age of 65, you can withdraw HSA funds for non-qualified expenses without incurring the 20% penalty. However, you will still need to pay income tax on the withdrawn amount.

To avoid penalties, only use your HSA funds for qualified medical expenses, such as doctor visits, prescriptions, and other eligible healthcare costs. Keeping proper records of your expenses can help you substantiate the withdrawals if needed.

Understanding the implications of withdrawing funds from your Health Savings Account (HSA) is crucial for maximizing your savings and avoiding costly penalties. If you withdraw HSA funds for anything other than qualified medical expenses before the age of 65, brace yourself for a hefty 20% penalty on the amount withdrawn.