A Health Savings Account is a tax-advantaged medical savings account that helps people pay for qualified out-of-pocket medical expenses. What are the withdrawal rules for HSAs? Are there special considerations that must be taken into account.
1. Withdrawals can be taken at any time. There is no holding period like with Roth IRAs. The entire withdrawal (including any earnings) is tax-free as long as there is a corresponding qualified medical expense. The medical expense must be incurred by either the owner or his or her spouse or dependents. Additionally, the medical expense does not need to occur in the same taxable years as the withdrawal. Instead, the medical expense must simply occur before the withdrawal is made.
What is an Health Savings Account (HSA)?
A Health Savings Account is a tax-advantaged medical savings account that can be used tax-free for qualified health expenses. HSAs are designed to be used in conjunction with a High Deductible Health Plan (HDHP). HSAs offer triple tax advantages: contributions are deductible, earnings are tax-deferred while in the HSA, and distributions are tax-free when used for qualified medical expenses.
1. Determine if you are eligible to make an HSA contribution. To be eligible to contribute to an HSA, you must be enrolled in an HDHP. To be an HDHP, a plan must meet certain limits on deductibles and out-of-pocket expenses. These limits are adjusted annually for inflation. You may not contribute to an HSA if you are enrolled in Medicare because Medicare is not an HDHP.