What are the Health Savings Account (HSA) withdrawal rules?

1 min readLast updated January 31, 2024by Unbiased team

Understanding a Health Savings Account's withdrawal rules and processes is crucial for individuals looking to make the most of their HSAs and maintain financial health.


  • A Health Savings Account provides a tax-free safety net for covering qualified medical expenses. 

  • You need to have eligible health insurance to hold this type of account. 

  • Withdrawals for unqualified medical expenses incur a penalty under certain conditions. 

  • Almost one-sixth of privately insured adults in the US have Health Savings Accounts.  

What is a Health Savings Account? 

A Health Savings Account (HSA) is a tax-exempt savings account individuals use to pay for qualified medical expenses, e.g., deductibles and copayments.  

An HSA serves as a financial cushion for healthcare costs, with the advantage that the pre-tax dollars invested in this account are not taxed upon withdrawal when used for eligible medical expenses. 

According to HSA withdrawal rules, the funds within an HSA do not expire, meaning you can withdraw them anytime. However, you can only contribute to an HSA if you have HSA-eligible health insurance (also called a High Deductible Health Plan), which excludes Medicare and policies that don't require first-dollar coverage. 

If you want to learn more about HSAs, click here.  

What are the HSA withdrawal rules? 

HSAs are primarily designed to pay for qualified medical expenses.  

However, unexpected turns in life may lead to the need to withdraw from them for non-qualified expenses. In such a case (and if you're younger than 65), you will incur a tax penalty of 20% and pay federal tax on the withdrawal amount. 

Additionally, only certain medical expenses qualify for tax-free withdrawals.  

Let’s take a look at what's considered a qualified medical expense. 

What are Qualified Medical Expenses? 

Qualified Medical Expenses (QMEs) are pivotal in determining the legitimacy of HSA withdrawals.  

So, what is a qualified medical expense for HSA?   

These expenses encompass a range of medical costs, including physical examinations, prescription medication, and preventative care. 

QMEs include the following: 

  • Physical examinations 

  • Prescription medications 

  • Preventative care 

  • Dental and vision care 

  • Mental health services 

If you have an HSA, familiarize yourself with the QME list to ensure you comply with HSA regulations and avoid incurring penalties.  

Additionally, you should keep proof of payment for these expenses should the IRS choose to audit you.  

The IRS stipulates which medical expenses qualify for tax-exempt withdrawals from an HSA in its Publication 502 and how to submit claims for withdrawals. While the publication outlines an extensive list of QMEs alphabetically, they acknowledge that the list needs to be more comprehensive. 

What are not considered Qualified Medical Expenses? 

Expenses that do not fall under the QME list are typically voluntary, meaning they aren't seen as medically essential or significant products or services.  

These expenses are also outlined in Publication 502; some examples include: 

  • Cosmetic surgery 

  • Non-prescription medications 

  • General health supplements 

What are the HSA withdrawal rules after 65? 

The rules of an HSA shift slightly when an HSA account holder reaches 65 years.   

HSA withdrawal rules after 65 stipulate that the 20% penalty for non-qualified withdrawals falls away, meaning you'd only need to pay federal tax on the amount withdrawn.  

This flexibility allows retirees to access their HSA funds without incurring penalties, providing them with a financial cushion for various expenses in their post-employment years. 

What are the HSA withdrawal rules when fired? 

If you lose your job due to termination, the HSA withdrawal rules change again.  

For starters, the funds within the account remain yours and roll over each year. However, while you cannot withdraw the funds directly when unemployed, you can use them to cover your health insurance premiums.  

This unique aspect of an HSA provides a safety net for those who face unexpected job loss, ensuring their health coverage remains intact during uncertain periods. 

Five tips when using an HSA 

As with all insurance policies, you can maximize the benefits and minimize costs with careful thought and actions.  

Here are five tips to consider when you have an HSA: 

  • Regularly review approved expenses: Keep track of QME updates to ensure compliance with HSA rules and avoid penalties. 

  • Contribute strategically: Maximize your contributions to take advantage of tax benefits. For example, from 55 years, you may add extra to your HSA every month. 

  • Invest wisely: Explore other investment options within your HSA for potential growth. These options will vary according to the insurance provider. 

  • Utilize employer contributions: When accessible, leverage employer contributions to boost your HSA balance. 

  • Emergency fund: Start and maintain a separate emergency fund to cover unexpected expenses that do not qualify as QMEs. 

Get expert financial advice  

Understanding HSA withdrawal rules and requirements is essential for ensuring you make the most of this type of savings account and the tax advantages it offers. In doing so, you can make informed financial decisions about potential healthcare costs.  

It’s always an excellent idea to seek the guidance of a financial advisor to explore  

savings strategies further and get expert financial advice.  

Let Unbiased match you with an SEC-regulated financial advisor to help you find the best Health Savings Account and ensure your long-term financial health.  

Match with a financial advisor today.  


Unbiased team

Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.