How to Spend and Withdraw Money From Your HSA

You can use HSA money for may have access to medical expenses right away, or save it for later

An HSA works like a regular savings account for medical costs. You put money in before taxes are taken out, and you can withdraw it to pay for doctor visits, prescriptions, dental work, vision care, and other may have access to medical expenses whenever you need to. The money stays in your account if you don't spend it — there is no "use it or lose it" rule like there is with a Flexible Spending Account (FSA). You can also leave the money invested and growing for decades, then withdraw it for medical expenses in retirement.

The catch is that you can only withdraw money tax-free if you spend it on may have access to medical expenses. If you withdraw money for something else, you pay income tax on it plus a 20 percent penalty (unless you are 65 or older, in which case you pay only the income tax). Knowing what counts as may have access to, how to prove you spent the money correctly, and how to handle withdrawals is what separates an HSA that works from one that creates a tax problem later.

Key Takeaways

• You can withdraw HSA money for any may have access to medical expense at any time without penalty or tax, even if you did not use the money in the year you contributed it.
• may have access to expenses include deductibles, copays, prescriptions, dental work, vision care, mental health treatment, and medical equipment — but not insurance premiums (with rare exceptions) or over-the-counter drugs without a prescription.
• You can pay for a may have access to expense out of pocket and reimburse yourself from your HSA months or years later, as long as you keep the receipt and can prove the expense was may have access to.
• If you withdraw money for a non-medical expense before age 65, you owe income tax plus a 20 percent penalty on that amount.
• After age 65, you can withdraw HSA money for any reason and pay only income tax, making it function like a traditional retirement 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 expect. It includes obvious things: doctor visits, hospital stays, surgery, prescriptions, dental work, vision care, hearing aids, and mental health treatment. It also includes less obvious things: crutches, wheelchairs, blood pressure monitors, glucose meters, acupuncture, chiropractic care, and physical therapy. If a doctor orders it or a licensed practitioner prescribes it, it usually qualifies.

Over-the-counter drugs and medicines are may have access to only if you have a prescription from a doctor — a receipt from the pharmacy is not enough. Aspirin, cold medicine, allergy pills, and antacids do not count unless a doctor wrote a prescription for them. Vitamins and supplements do not count at all, even with a prescription. Health insurance premiums generally do not count, though you can use HSA money to pay premiums if you are receiving unemployment benefits.

Things that do not count include cosmetic procedures (unless they are medically necessary), gym memberships, general wellness products, and anything related to a non-medical condition. If you are unsure whether an expense qualifies, the IRS Publication 502 lists hundreds of examples, and your HSA provider can usually answer specific questions.

How to withdraw money for immediate medical expenses

If you have a medical expense today, you can withdraw money from your HSA to pay for it. The process depends on your HSA provider. Some providers give you a debit card that works like a regular bank card — you swipe it at the pharmacy or doctor's office, and the money comes out of your HSA. Others require you to pay out of pocket and then submit a claim for reimbursement. A few let you do both.

If your provider uses a debit card, keep your receipt anyway. The IRS does not require you to submit receipts when you use the card, but you must be able to prove the expense was may have access to if the IRS ever audits you. Save receipts for at least three years. If your provider requires you to submit a claim, you will need the receipt, an invoice from the provider, and sometimes a letter from your doctor explaining why the expense was medically necessary.

Some HSA providers charge a fee for each withdrawal or claim you submit. Check your account documents to see whether your provider charges per transaction. If they do, it may make sense to batch your withdrawals — pay several expenses out of pocket, then submit one claim for all of them at once.

Reimbursing yourself from your HSA for past expenses

You do not have to withdraw HSA money when you have a medical expense. You can pay for the expense yourself and then reimburse yourself from your HSA later — even months or years later. This strategy lets your HSA money stay invested and grow, while you use other savings to cover immediate costs.

To reimburse yourself, you need the original receipt or invoice showing the date, the provider's name, the service or product, and the amount. You do not need a doctor's letter unless the expense is unusual or the provider asks for one. Submit the receipt to your HSA provider along with a request for reimbursement. Most providers process reimbursement requests within one to two weeks.

This approach works well if you have other savings available and want to let your HSA grow. For example, you could pay a $500 dental bill out of pocket in 2024, keep the receipt, and reimburse yourself in 2027 when you have a larger HSA balance. The $500 you withdrew in 2027 is still tax-free because the expense occurred in 2024 — the year you spent the money is what matters, not the year you withdraw it.

Investing HSA money instead of spending it

Many HSA providers let you invest your balance in mutual funds, stocks, or other investments, similar to a 401(k). This is one of the biggest advantages of an HSA over an FSA: your money can grow for decades. You pay no tax on the growth, and when you withdraw it for a may have access to medical expense, the growth comes out tax-free too.

Not all HSA providers offer investment options, and those that do may charge fees. Some require you to keep a minimum balance in cash (often $1,000 to $2,500) before you can invest the rest. Check your provider's website or call them to see what investment options are available and what the fees are. If your current provider does not offer investments and you want them, you can roll your HSA to a different provider that does.

Investing makes sense if you do not plan to spend the money soon. If you have a high-deductible health plan and expect to cover most medical costs out of pocket anyway, your HSA will grow. If you are young and healthy, you might not need the money for years. In that case, investing lets the money compound and gives you a larger pool to draw from for medical expenses in retirement.

Withdrawals after age 65

Once you turn 65, the rules change. You can still withdraw money tax-free for may have access to medical expenses. But you can also withdraw money for any reason — groceries, rent, travel, anything — and pay only income tax on it. You do not pay the 20 percent penalty anymore. This makes your HSA function like a traditional IRA or 401(k) in retirement.

If you withdraw money for a non-medical expense after 65, you owe income tax at your ordinary tax rate, but nothing more. For example, if you withdraw $10,000 for a vacation and you are in the 22 percent tax bracket, you owe $2,200 in tax. Compare that to withdrawing before 65, when you would owe $2,200 in tax plus $2,000 in penalty — a total of $4,200.

Many people use this feature to let their HSA grow untouched during their working years, then use it as a supplemental retirement account after 65. You can withdraw for medical expenses tax-free, and anything left over can be spent on other retirement needs with only income tax owed.

Keeping records and avoiding IRS problems

The IRS can audit your HSA withdrawals at any time, even years after you made them. If you cannot prove that a withdrawal was for a may have access to medical expense, you owe income tax on it plus a 20 percent penalty, plus interest. Keeping good records is the only protection.

Save every receipt, invoice, and explanation of benefits (EOB) from your insurance company. Write the date and the provider's name on the receipt if it is not already there. If you reimbursed yourself months after the expense, write the reimbursement date on the receipt too. Store receipts in a folder, a spreadsheet, or a photo app — whatever system you will actually use and remember. Many people photograph receipts and store them in a cloud folder so they do not lose them.

If you use your HSA debit card, your provider's statement shows the transaction, but it may not show what the expense was for. A statement that says "CVS Pharmacy $45" does not prove the $45 was for a may have access to expense. Keep the receipt from CVS to show what you bought. If the IRS ever asks, you can show both the statement and the receipt together.

Frequently Asked Questions

Can I use HSA money to pay my health insurance premium?

Generally no, but there are two exceptions. You can use HSA money to pay premiums if you are receiving unemployment benefits. You can also use it to pay Medicare premiums (Part B, Part D, and supplemental insurance) once you turn 65. You cannot use it for regular health insurance premiums while you are working.

What happens if I withdraw money and later find out the expense was not may have access to?

You owe income tax plus a 20 percent penalty on that withdrawal. If you discover this before the IRS does, you can file an amended tax return and pay what you owe. If the IRS discovers it during an audit, you also owe interest. The best protection is to ask your HSA provider or check IRS Publication 502 before you withdraw if you are unsure.

Can I withdraw money from my HSA if I no longer have a high-deductible health plan?

Yes. Once money is in your HSA, you can withdraw it for may have access to medical expenses anytime, regardless of what health plan you have now. You cannot make new contributions once you leave a high-deductible plan, but the money already in the account is yours to use.

Do I have to report HSA withdrawals on my tax return?

You report the total amount you withdrew, but if the withdrawal was for a may have access to medical expense, you do not owe tax on it. Your HSA provider sends you a Form 1099-SA showing the total withdrawn. You report this on your tax return, and if the entire amount was may have access to, there is no tax owed.

Can I use HSA money to pay for my spouse's or child's medical expenses?

Yes, as long as they are on your health insurance plan or you claim them as dependents on your tax return. The expense must still be may have access to — it is the type of expense that matters, not who receives the care.