Yes, you can withdraw money from your HSA, but the rules about what you can spend it on matter

You can withdraw money from your Health Savings Account whenever you want. The account is yours. But there is a catch: if you withdraw money to pay for something that is not a may have access to medical expense, you will owe income tax on that withdrawal plus a 20 percent penalty. That penalty goes away after you turn 65, but the income tax stays.

The key is understanding what counts as a may have access to medical expense. The list is longer than most people think, and it includes things beyond doctor visits and prescriptions. It also excludes some things people assume are covered.

Key Takeaways

  • You can withdraw money from your HSA at any time without waiting periods or approval from your bank or employer.
  • Withdrawals for may have access to medical expenses carry no tax penalty, but withdrawals for other purposes trigger a 20 percent penalty plus income tax until age 65.
  • may have access to expenses include deductibles, copays, prescriptions, dental work, vision care, and some over-the-counter items like bandages and pain relievers, but not health insurance premiums or cosmetic procedures.
  • You can withdraw money by check, debit card, or transfer, depending on how your HSA provider set up your account.
  • Keep receipts and records of what you spent the money on, because the IRS can ask you to prove an expense was may have access to.

How to actually withdraw the money

The mechanics depend on your HSA provider. Some HSA accounts come with a debit card that works like a regular bank card at pharmacies, doctor offices, and medical supply stores. You swipe it, and the money comes out of your HSA. Other providers let you write checks or transfer money to your regular bank account, then you pay the medical provider yourself.

Check with your HSA provider about which methods they offer. If your account came through your employer, your HR or benefits department can tell you who manages it and what options are available. If you opened it yourself, your bank or the HSA custodian will have sent you instructions when you set up the account.

There is no waiting period. You do not need to ask permission or fill out a form to withdraw your own money. It works the same way as withdrawing from a regular savings account.

What counts as a may have access to medical expense

The IRS publishes a list of may have access to medical expenses, and it is longer than most people realize. may have access to expenses include:

  • Deductibles, copays, and coinsurance you owe to doctors, dentists, and hospitals
  • Prescription medications
  • Over-the-counter medications like pain relievers, cold medicine, and allergy pills (you need a prescription or doctor's note for these to count)
  • Dental work including cleanings, fillings, root canals, and orthodontia
  • Vision care including eye exams, glasses, and contact lenses
  • Hearing aids and hearing tests
  • Mental health counseling and therapy
  • Physical therapy and rehabilitation
  • Medical equipment like crutches, wheelchairs, and blood pressure monitors
  • Insulin and other diabetes supplies
  • Bandages, gauze, and first aid supplies

The rule is that the expense must be for diagnosis, treatment, or prevention of a disease or condition. If a doctor or dentist recommends it and it treats a medical problem, it usually qualifies.

What does not count, even if it feels medical

Some expenses that sound medical do not may have access to. Health insurance premiums do not count — not your regular monthly premium, and not premiums for supplemental coverage. The exception is COBRA coverage (temporary health insurance if you lose your job) and long-term care insurance, which do may have access to.

Cosmetic procedures do not count unless they treat an injury or disease. Botox for wrinkles does not may have access to. Botox for a medical condition like migraines might. Gym memberships and general wellness programs do not count, even if your doctor recommends exercise. Vitamins and supplements do not count unless they treat a specific medical condition and a doctor prescribed them.

Over-the-counter items like pain relievers and cold medicine do not count unless you have a prescription or a doctor's written note saying you need them for a specific condition. Sunscreen, toothpaste, and deodorant do not count. Maternity clothes do not count, but prenatal vitamins prescribed by a doctor do.

What happens if you withdraw money for something that does not may have access to

If you withdraw money and spend it on something that is not a may have access to medical expense, you owe income tax on that amount plus a 20 percent penalty. The penalty is separate from the tax.

For example, if you withdraw $500 to pay for a gym membership and you are in the 22 percent tax bracket, you would owe $110 in income tax (22 percent of $500) plus $100 in penalty (20 percent of $500), for a total of $210. You would report this on your tax return.

The 20 percent penalty goes away after you turn 65. After that age, you can withdraw money for any reason and only owe income tax, not the penalty. This makes an HSA work like a regular retirement account once you reach 65.

Keeping records so you can prove what you spent it on

The IRS does not require you to submit receipts when you withdraw money, but you need to keep them. If the IRS audits your tax return and questions whether an expense was may have access to, you have to prove it was. A receipt from a pharmacy, doctor, or medical supply store is your proof.

Keep receipts for at least three years after you file the tax return for that year. If you use your HSA debit card, your account statement will show the merchant name and amount, but not what you bought. The receipt fills in that detail.

If you withdraw money and pay a medical provider yourself, keep the receipt or invoice showing what service or product you paid for. A receipt that just says "Dr. Smith — $150" is enough. A receipt that says "Dr. Smith — office visit for knee pain" is better, because it shows the expense was medical.

Using your HSA for someone else's medical expenses

You can withdraw money from your HSA to pay for may have access to medical expenses of your spouse or dependents, even if they are not covered by your health plan. The money still comes from your account, and you still get the tax benefit.

You cannot withdraw money to pay for someone else's medical expenses if they are not your spouse or dependent. If you try, that withdrawal counts as non-may have access to and triggers the tax and penalty.

Frequently Asked Questions

Can I withdraw money from my HSA without a receipt?

Yes, you can withdraw money whenever you want without showing a receipt to your bank or HSA provider. But you need to keep the receipt yourself. If the IRS asks, you have to prove the money went to a may have access to medical expense. Without a receipt, you cannot prove it.

What if I withdraw money thinking it is may have access to and later find out it is not?

You still owe the tax and penalty. The IRS does not care whether you made an honest mistake. If you realize you made a withdrawal for a non-may have access to expense, you can put the money back into your HSA within a certain time frame in some cases, but this is complicated. Talk to a tax professional if this happens to you.

Can I withdraw money from my HSA to pay my health insurance deductible?

Yes. Your deductible is a may have access to medical expense. You can use HSA money to pay it. You cannot use HSA money to pay your monthly insurance premium, but you can use it for the deductible, copays, and coinsurance that come after.

Do I have to use my HSA money before the end of the year?

No. HSA money does not expire. Unlike a Flexible Spending Account (FSA), which is a different type of account, your HSA balance rolls over every year. Money you do not spend stays in the account and earns interest or investment returns, depending on how your account is set up.

What if I withdraw money and then do not actually spend it on medical care?

If you withdraw money and do not spend it on a may have access to expense, that withdrawal is non-may have access to. You owe tax and penalty on it, even if you intended to spend it on medical care but changed your mind. The rule is based on what you actually spent the money on, not what you planned to spend it on.