Yes, you can take money out of your HSA, but the rules about what you can spend it on are strict

You can withdraw money from your Health Savings Account at any time. The catch is that the money must go toward may have access to medical expenses — the IRS has a specific list of what counts. If you withdraw money for something that is not on that list, you will owe income tax on the amount plus a 20 percent penalty.

The good news is that the list of may have access to expenses is longer than most people think. It includes doctor visits, prescriptions, dental work, vision care, and many over-the-counter items. It does not include health insurance premiums (with a few exceptions), cosmetic procedures, or general wellness products like vitamins.

How you withdraw the money depends on how your HSA is set up. Some accounts come with a debit card you can use at the pharmacy or doctor's office. Others require you to pay out of pocket and then request a reimbursement. A few are investment accounts where you have to sell shares before you can access the cash.

Key Takeaways

  • You can withdraw HSA money at any time, but it must be spent on may have access to medical expenses or you will owe taxes and a 20 percent penalty.
  • may have access to expenses include doctor visits, prescriptions, dental work, vision care, and some over-the-counter medical items, but not health insurance premiums or vitamins.
  • Your HSA provider will give you a debit card, a reimbursement process, or an investment account interface depending on the type of account you have.
  • You do not have to spend the money in the same year you earn it — HSA funds roll over indefinitely and can be used years later.

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 copays, deductibles, and coinsurance for doctor visits; prescription medications; dental cleanings, fillings, and orthodontia; eyeglasses, contact lenses, and eye exams; and hearing aids and batteries.

Over-the-counter items count too, but only if they treat a specific medical condition. Bandages, pain relievers, allergy medicine, and antacids are all may have access to. Sunscreen, toothpaste, and multivitamins are not, because they are considered general wellness rather than treatment. The line can be fuzzy — if you are unsure, your HSA provider's website usually has a searchable database of approved items.

Some expenses that surprise people: long-term care insurance premiums (up to a yearly limit set by the IRS), certain medical equipment like crutches or wheelchairs, and therapy copays. Gym memberships and weight loss programs do not count unless they are prescribed by a doctor to treat a specific condition like obesity or diabetes.

How to withdraw money depending on your account type

If your HSA comes with a debit card, you can swipe it at pharmacies, doctor's offices, and medical supply stores just like a regular card. The transaction should be coded as a medical expense automatically. Keep your receipt anyway — the IRS can ask you to prove that a withdrawal was for a may have access to expense, even years later.

If your account is reimbursement-based, you pay for the medical expense yourself and then submit a claim to your HSA provider. You will need the receipt and sometimes a description of what the expense was for. The provider will review it and send you a check or transfer the money to your bank account. This process usually takes one to two weeks.

If your HSA is an investment account, the money is held in mutual funds or other investments rather than cash. You will need to log into your account, sell enough shares to cover your withdrawal, and then request the cash. This can take a few business days. Investment-based HSAs are less common and are usually offered by larger employers or if you open an HSA on your own.

What happens if you withdraw money for a non-may have access to expense

If you take money out of your HSA for something that is not a may have access to medical expense, you will owe federal income tax on that amount at your regular tax rate. You will also owe a 20 percent penalty on top of the tax. So if you withdraw $500 for a non-may have access to expense and you are in the 22 percent tax bracket, you would owe $110 in taxes plus $100 in penalties — a total of $210.

The exception is if you are 65 or older. At that age, 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 HSAs a useful retirement savings tool if you do not spend all the money on medical care while you are working.

You report non-may have access to withdrawals on your tax return using Form 8889. Your HSA provider will send you a statement at the end of the year showing how much you withdrew. If you made a mistake — for example, you thought something was may have access to when it was not — you can sometimes correct it by redepositing the money within a certain timeframe, though rules vary by provider.

HSA money does not have to be spent in the same year

Unlike a Flexible Spending Account (FSA), your HSA balance does not disappear at the end of the year. Money you do not spend rolls over indefinitely. This means you can let your HSA grow for years and use it whenever you need to pay for medical expenses.

Some people use this to their advantage by paying for medical expenses out of pocket while they are young and healthy, and letting their HSA grow like a retirement account. Then later in life, when medical expenses are higher, they withdraw the accumulated balance. You can even withdraw money years after you paid the expense, as long as you have documentation that the expense was may have access to and you did not already reimburse yourself from another source.

If you change jobs or leave your job, your HSA stays with you. The money is yours, not your employer's. You can keep the account open, move it to a different provider, or roll it into another HSA. There is no time limit on how long you can hold the money.

Keeping records of your withdrawals

The IRS does not require you to submit receipts when you withdraw money, but you must keep them for your records. If the IRS audits you, they can ask you to prove that a withdrawal was for a may have access to expense. Without documentation, you could end up owing taxes and penalties on withdrawals you made years ago.

Keep receipts, explanation of benefits statements from your insurance, and any other paperwork that shows what the expense was and how much it cost. If you used your HSA debit card, the transaction history on your account statement counts as documentation, but a receipt is better because it shows what you actually bought.

Some HSA providers offer tools to track and categorize your expenses. If yours does, use it — it makes tax time easier and gives you a clear record if you ever need to prove your withdrawals were may have access to.

Frequently Asked Questions

Can I withdraw HSA money to pay my health insurance premium?

No, not usually. You cannot use HSA money to pay premiums for regular health insurance. The exceptions are COBRA continuation coverage, long-term care insurance (up to an IRS limit), and Medicare premiums if you are 65 or older. If you are unemployed, you may also be able to use HSA funds for health insurance premiums while you are receiving unemployment benefits.

What if I use my HSA debit card and the purchase turns out to not be may have access to?

You should repay the HSA the amount of the non-may have access to purchase within a reasonable time. If you do not, the withdrawal will be treated as a non-may have access to distribution and you will owe taxes and the 20 percent penalty. Keep track of any mistakes and correct them as soon as you realize them.

Can I withdraw HSA money to pay for my spouse's or child's medical expenses?

Yes, as long as they are your dependent for tax purposes. You can use your HSA to pay for may have access to medical expenses for yourself, your spouse, and any children or other dependents you claim on your tax return, even if they are not covered under your health plan.

What happens to my HSA if I switch to a different health plan?

Your HSA is separate from your health plan, so switching plans does not affect the account or the money in it. You can keep using the HSA to pay for may have access to medical expenses regardless of what health plan you have. If your new plan is not HSA-compatible, you can no longer make new contributions, but you can still withdraw money for may have access to expenses.

Can I withdraw HSA money before I meet my deductible?

Yes. There is no rule that says you have to meet your deductible first. You can withdraw HSA money to pay for any may have access to medical expense at any time, even if you have not reached your deductible yet. Many people use their HSA to cover the deductible itself.