Yes, you can withdraw money from your HSA, but the rules about what you can spend it on are strict
You can withdraw money from your HSA at any time. The account is yours. But if you withdraw money and spend it on something that is not a may have access to medical expense, you will owe income tax on that withdrawal plus a 20 percent penalty. The IRS publishes a list of what counts as a may have access to medical expense, and it is narrower than most people think.
The key difference between an HSA and a regular savings account is that the money you put in is tax-deductible, the money grows tax-free, and withdrawals for may have access to medical expenses are also tax-free. That triple tax advantage only applies if you follow the rules. Withdrawals for non-medical purposes cost you more than taking money out of a regular bank account would.
After age 65, the rules change slightly. You can withdraw money for any reason without the 20 percent penalty, though you will still owe income tax on non-medical withdrawals. This makes an HSA function like a traditional retirement account once you reach 65.
Key Takeaways
- You can withdraw HSA money whenever you want, but non-medical withdrawals trigger both income tax and a 20 percent penalty until age 65.
- may have access to medical expenses include deductibles, copays, coinsurance, prescription drugs, dental work, vision care, and some medical equipment, but not insurance premiums or over-the-counter drugs without a prescription.
- You can withdraw money by writing a check from your HSA account, using a debit card linked to the account, or requesting a transfer to your bank account.
- Keep receipts and records of what you spent the money on, because the IRS can ask you to prove that withdrawals were for may have access to expenses.
- If you withdraw money for a non-may have access to expense by mistake, you can put it back into the account within a certain timeframe to avoid the penalty.
What counts as a may have access to medical expense
The IRS maintains a list of may have access to medical expenses. The most common ones are your health insurance deductible, copays, coinsurance, prescription medications, dental work, vision care (including glasses and contact lenses), hearing aids, and certain medical equipment like crutches or blood pressure monitors. Mental health treatment, physical therapy, and lab work also count.
Over-the-counter medications are may have access to only if you have a prescription from a doctor. Aspirin, cold medicine, and allergy pills you buy without a prescription do not count, even if they treat a medical condition. Vitamins and supplements do not count unless a doctor prescribes them to treat a specific medical condition.
Health insurance premiums themselves are not may have access to expenses, with one exception: if you are receiving unemployment benefits, you can use your HSA to pay for health insurance premiums during that time. Long-term care insurance premiums have limits on how much you can withdraw for them.
Cosmetic procedures do not count unless they are medically necessary. Teeth whitening is cosmetic. Dental work to repair a broken tooth is not. If you are unsure whether something qualifies, the IRS website has a searchable database of may have access to and non-may have access to expenses.
How to actually withdraw the money
The method depends on how your HSA is set up. Most HSAs come with a debit card that you can use to pay for medical expenses directly at the point of sale—at a pharmacy, doctor's office, or hospital. The money comes straight out of your HSA balance. This is the simplest way to withdraw for may have access to expenses because there is no paperwork.
If your HSA does not have a debit card, or if you want to withdraw money for a reason other than an immediate medical bill, you can request a check from the HSA custodian (the bank or financial company holding the account). You write the check yourself, just like from a regular checking account. Some custodians also allow you to transfer money electronically to your personal bank account.
A few HSA providers let you reimburse yourself for medical expenses you paid out of pocket. You pay the bill with your own money, then submit a receipt to the HSA custodian and request a withdrawal to your bank account. This method is useful if you want to keep the money invested in your HSA longer and only withdraw it when you need it.
What happens if you withdraw for a non-may have access to expense
If you withdraw money and spend it on something that does not may have access to, you owe income tax on that amount plus a 20 percent penalty. The income tax rate depends on your tax bracket. If you are in the 22 percent tax bracket and withdraw $1,000 for a non-may have access to expense, you would owe $220 in income tax plus $200 in penalty, for a total of $420 in taxes and penalties on that $1,000.
You report the non-may have access to withdrawal on your tax return using Form 8889. The IRS does not automatically know that you withdrew money for a non-may have access to reason—they only know if you report it or if the HSA custodian reports it to them. But if you get audited and cannot show receipts proving the money went to may have access to expenses, the IRS will assess the penalty.
If you withdraw money by mistake and realize it should not have been withdrawn, you can put it back into the account within a certain timeframe. This is called a rollover correction. If you return the money before your tax return is due for that year, you can avoid the penalty. Check with your HSA custodian about their specific rules and deadlines for corrections.
Withdrawals after age 65
Once you turn 65, the 20 percent penalty goes away. You can withdraw money from your HSA for any reason—medical or not—and you will only owe income tax on non-medical withdrawals. This makes the HSA work like a traditional IRA or 401(k) in retirement.
Medical withdrawals remain tax-free even after 65. So if you withdraw $5,000 for a may have access to medical expense at age 67, you owe no tax. If you withdraw $5,000 to pay for a vacation, you owe income tax on that $5,000 but no penalty.
Many people use this feature to let their HSA grow as an investment account during their working years, then use it as a flexible retirement fund after 65. You are not required to spend down the account by a certain age, and there are no required minimum withdrawals like there are with traditional IRAs.
Keeping records and avoiding trouble with the IRS
The IRS can ask you to prove that your HSA withdrawals were for may have access to medical expenses. Keep receipts, invoices, and explanation of benefits (EOB) statements from your health insurance. If you paid out of pocket and then reimbursed yourself from the HSA, keep the receipt showing what you paid for and when.
You do not have to submit receipts to your HSA custodian when you withdraw money using the debit card. But you should keep them in case the IRS asks. If you cannot produce a receipt, the IRS may disallow the withdrawal and assess the penalty retroactively, even years later.
If you use the HSA debit card at a merchant that does not clearly identify what you bought (for example, a general store or pharmacy that sells both medical and non-medical items), the IRS may ask for clarification. A receipt showing you bought only may have access to items protects you.
What to do if you need money but are not sure it qualifies
Before you withdraw, check the IRS database of may have access to medical expenses or call your HSA custodian and ask. Most custodians have a customer service line and can tell you whether a specific expense qualifies. Getting confirmation in writing or by email is even better, because it creates a record if the IRS questions the withdrawal later.
If the expense does not may have access to and you need the money anyway, you can withdraw it and pay the tax and penalty. It is your money. But understand the cost upfront so you can decide whether it is worth it. For some people, the penalty is worth paying to access the money they need.
If you have a choice between withdrawing from your HSA for a non-may have access to expense and borrowing money or using a credit card, compare the costs. The 20 percent penalty plus income tax might be lower or higher than credit card interest, depending on your situation.
Frequently Asked Questions
Can I withdraw money from my HSA to pay my health insurance premium?
No, not for regular health insurance premiums. You can use HSA money to pay premiums only if you are receiving unemployment benefits. If you are paying COBRA premiums after leaving a job, those do not count either. Long-term care insurance premiums have a limit on how much you can withdraw per year, depending on your age.
What if I withdraw money and then do not use it for a medical expense?
You owe income tax plus a 20 percent penalty on that withdrawal. If you realize the mistake before your tax return is due, you can put the money back into the account to avoid the penalty. After that deadline passes, you will have to report it on your tax return and pay both the tax and penalty.
Can I withdraw money from my HSA if I switch to a different health insurance plan?
Yes. Your HSA is separate from your health insurance. You can change insurance plans, switch to Medicare, or drop coverage entirely, and you can still withdraw money from your HSA for may have access to medical expenses. The account stays with you as long as you keep it open.
Do I have to withdraw money from my HSA every year?
No. There is no requirement to withdraw anything. You can let the money sit and grow. Unlike a flexible spending account (FSA), HSA money does not disappear at the end of the year. You can leave it untouched for decades if you want.
What if I withdraw money and my HSA custodian reports it to the IRS?
Your HSA custodian reports all withdrawals to the IRS on Form 1099-SA. The IRS does not automatically penalize you based on this report. You report the withdrawal on your tax return. If you can show it was for a may have access to expense, there is no penalty. If you cannot, you owe the tax and penalty when you file.