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What Can I Use My HSA Funds For?

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Withdrawing funds from your HSA

You can withdraw funds - tax free - from your HSA at any time for qualified medical expenses. Everyone with an HSA must keep all their receipts showing their expenditures from their account in case you are audited by the IRS and need to explain your HSA expenditures.

If an expenditure from your HSA is used for purposes other than a qualified medical expense, then the amount withdrawn is subject to both income tax and a 10% penalty, unless the person who makes such a withdrawal from their HSA is over the age of 65. For persons age 65 and older, the amount withdrawn for non-medical purposes is treated as retirement income and is subject to normal income tax, but is not subject to the 10% penalty.

What is a qualified medical expense?

There is a list of qualified medical expenses published by the Internal Revenue Service, referred to as the 213(d) list. You can access that list in PDF format here: http://www.irs.gov/pub/irs-pdf/p502.pdf.

In general, you can spend tax-free from your Health Savings Account on all medical, prescription drugs, dental (including braces for your children) and vision expenses, chiropractic visits, and even acupuncture. To be a qualified medical expense, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. You can't use your HSA funds to pay your insurance premiums, unless you are unemployed and are collecting Federal unemployment benefits.