Health Savings Account (HSA) Withdrawals
Understand when and how to withdraw money from your Health Savings Account (HSA). You may also view a sample listing of eligible and excluded expenses (PDF: 72 KB).
Using your HSA money
HSA money can be used to pay deductibles and other out-of-pocket qualifying medical expenses for you or your dependents without tax or penalty. Qualifying medical expenses are those that the Internal Revenue Service (IRS) has determined are deductible for income-tax purposes, as outlined in Section 213(d) of the Internal Revenue Code. Within that general rule, your HSA money can pay for:
- Expenses subject to the deductible and coinsurance under your High Deductible Health Plan (HDHP).
- Prescription drugs
- Certain medical expenses not covered by your insurance, but included in Section 213(d)
- Effective 1/1/2011, over-the-counter drugs will no longer be qualified medical expenses unless they are prescribed by a health care provider.
HSA money cannot be used to pay the premiums for most types of medical insurance. The exceptions to this rule are premiums for:
- Long-term care insurance
- COBRA continuation
- Medical insurance while an individual is receiving unemployment
- Some types of insurance for Medicare-eligible individuals, including:
- Medicare parts A, B, and D
- Medicare HMO coverage
- Retiree contributions to employer-sponsored coverage
Payment of premiums for Medigap policies with HSA funds is not allowed.
For more information about qualified medical expenses, we recommend reviewing IRS Publication 502, available at www.irs.gov, or talking with your tax advisor.
Qualified withdrawals
Upon receiving medical services, have your doctors and service providers submit claims to your insurance company to ensure the claims are counted toward your deductible.
When you receive an adjusted bill, the following payment options are available:
- Write a check from your HSA.
- Visit your doctor’s office and use your HSA debit card.
- Call your doctor’s office and provide your HSA debit card number.
- Use online bill pay
- Pay out-of-pocket and reimburse yourself from the HSA at a later time.
- Pay out-of-pocket and not reimburse yourself from the HSA so the money in your HSA can grow.
Withdrawals from your HSA for qualified medical expenses are not subject to income tax. You may make 12 free withdrawals per statement cycle; additional withdrawals incur a $10 (plus tax) excess transaction fee.
Nonqualified withdrawals
You can make withdrawals from your HSA for purposes other than qualified medical expenses. However, nonqualified withdrawals are taxed as regular income, and if you are under age 65, an additional 10% penalty tax is applied. Effective 1/1/2011, excise taxes on nonqualified HSA withdrawals before age 65 will increase from 10% to 20%.
You may make qualified withdrawals for yourself or any of your dependents, even those not covered as a dependent under your HDHP.
Once you reach age 65, you can make withdrawals for nonqualified expenses and simply pay income taxes on the amount.
Keep records of your qualified withdrawals: By law, you are responsible for substantiating that any withdrawals from your HSA are for qualified medical expenses. Keep receipts and Explanation of Benefits statements as proof should you ever be audited. Use the HSA Expense Tracking Sheet to make this easy!
Mistaken withdrawals
If you have mistakenly withdrawn money from your HSA, complete an HSA deposit slip and mail it in with the amount of the mistaken withdrawal in a postage-paid envelope. Be sure to complete the mistaken distribution section of the deposit slip.
This material is a summary of Health Savings Accounts. It is not a complete statement of the provisions or requirements of HSAs. It is intended to provide accurate and authoritative information in regard to the subject matter covered. The accuracy of the information is not guaranteed and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Custodial services for Health Savings Accounts offered by Principal Life Insurance Company. Bank products and services provided by Principal Bank, Member FDIC, Equal Housing Lender. HSA monies held in a Principal Bank account are FDIC insured. Principal Life and Principal Bank are members of the Principal Financial Group, Des Moines, IA 50392.
