A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. Understanding how HSA withdrawals work is crucial to maximizing their benefits.
Qualified Medical Expense Withdrawals
You can withdraw funds from your HSA tax-free if the money is used to pay for qualified medical expenses as defined by the IRS. These include costs like doctor visits, prescriptions, dental and vision care, and certain medical equipment. IRS Publication 502, Medical and Dental Expenses, provides an extensive list of deductible medical expenses eligible for HSA withdrawals (see IRS Publication 502).
Using HSA Funds for Long-Term Care Insurance Premiums
HSA funds can also be used to pay for qualified long-term care insurance premiums, subject to limits based on your age. For 2025, the IRS sets increasing limits for deductible long-term care premiums that vary by age. For example, if you are 50 or older, you can deduct a higher amount, which translates to a higher allowable withdrawal from your HSA. For detailed rules, see IRS Publication 969, which covers Health Savings Accounts and other tax-favored health plans (IRS Publication 969).
Withdrawals After Age 65
Once you reach age 65, withdrawals from your HSA used for non-medical expenses are treated like distributions from a traditional IRA or 401(k). You will pay ordinary income tax on those amounts, but there is no 20% penalty for non-qualified withdrawals. This feature makes HSAs a flexible savings vehicle beyond healthcare expenses.
Comparing HSAs to Retirement Accounts
While HSAs are designed primarily for healthcare spending, their triple tax advantage — tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses — makes them uniquely valuable alongside retirement accounts like 401(k)s and IRAs. Consider maximizing contributions to both your HSA and retirement plans to optimize your savings strategy (see Retirement Savings).
Important IRS Forms
- Form 8889, Health Savings Accounts (HSAs), is used to report HSA contributions and distributions on your tax return.
- Form 1099-SA reports distributions from your HSA.
Summary
Health Savings Account withdrawals are tax-advantaged when used properly. Careful planning ensures you can cover medical costs now and in retirement. For more detailed guidance on HSA rules and qualified expenses, consult IRS publications and financial professionals.
For authoritative details, visit IRS.gov’s Health Savings Accounts page.
Related topics to explore on FinHelp.io:
