Distributions from your HSA are tax-free as long as they are used for qualified medical expenses.¹ Always keep receipts and supporting documentation in case the IRS requests verification.
If you take a distribution for something other than a qualified medical expense and you are under age 65, the amount will be subject to both ordinary income tax and a 20% penalty.
Once you are 65 or older, non-qualified distributions are no longer subject to the penalty. However, the amount withdrawn will still be treated as taxable income.²
1:IRC Sec. 223(f)(1), 2:Publication 969 (2018), Health Savings Accounts and Other Tax-Favored Health Plans.
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