Health Savings Account (HSA)—Withdrawal and Spending Rules

A health savings account (HSA) is a trust or account used to pay medical expenses that a high deductible health plan (HDHP)does not pay. HSAs offer triple tax advantages to account owners, including tax exemptions for contributions, earnings and distributions. To obtain the last exemption, HSA holders must follow strict rules for spending HSA funds.

HSA funds may be used on a tax-free basis if they are used to pay for qualified medical expenses that were incurred after the HSA was established. Individuals do not need to meet the eligibility criteria for making HSA contributions to receive a tax-free withdrawal from their HSAs. For medical expenses incurred after an HSA is established, there is no time limit for when an HSA owner may take a withdrawal. All unused funds remain in an HSA from year to year and may be used for qualified medical expenses incurred in the future.

Employers that offer HSA programs generally have very little, if any, involvement in HSA distributions. HSA owners have sole discretion for how and when to use HSA funds, and an HSA custodian or trustee tracks and reports all HSA activity.