Yes, you can take money out of your HealthEquity account, as the funds in your Health Savings Account (HSA) are your money.
Understanding HealthEquity Account Withdrawals
Withdrawing money from your HealthEquity account, which typically holds your Health Savings Account (HSA) funds, is possible, but the tax implications and potential penalties depend entirely on how you use the money.
Tax-Free and Penalty-Free Withdrawals
You can take money out of your HSA at any time, tax-free and without penalty, provided the funds are used to pay for qualified medical expenses. This is the primary purpose of an HSA, allowing you to pay for healthcare costs with pre-tax dollars (or tax-deductible contributions) and then withdraw them tax-free.
Examples of qualified medical expenses often include:
- Doctor's visits and co-pays
- Prescription medications
- Dental care and orthodontics
- Vision care (e.g., eye exams, glasses, contacts)
- Hospital services
- Many over-the-counter medications (with a doctor's note in some cases)
- Deductibles and co-insurance for your health plan
Keeping thorough records of your medical expenses is crucial if you plan to withdraw funds to cover them, as you may need to prove the expenses were qualified in the event of an IRS audit.
Withdrawals for Non-Medical Purposes
If you choose to take money out of your HealthEquity HSA for purposes other than qualified medical expenses, there are significant financial consequences:
- Income Taxes: The withdrawn amount will be subject to income taxes, just like regular income.
- 20% Penalty: In addition to income taxes, you will also incur a 20% penalty on the withdrawn amount.
This means that using your HSA funds for non-medical reasons can be quite costly. The only exception to the 20% penalty is typically after age 65, when withdrawals for non-medical purposes are still subject to income tax but the penalty is waived.
Key Considerations for Your HealthEquity Account
- Your Money: Remember that the funds in your HealthEquity HSA are yours and do not expire.
- Flexibility: While designed for medical expenses, the funds offer flexibility, but with clear tax implications if used otherwise.
- Long-Term Savings: Many individuals use their HSA as a long-term savings and investment vehicle, recognizing its triple tax advantage (tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses).
By understanding these rules, you can make informed decisions about when and how to access the money in your HealthEquity account.