Daniel Stewart

HSA Penalties to Be Aware Of

Health savings account (HSA) benefits are a big help for people who want to offset medical costs, and many employers offer access to HSA benefits at work. Aside from giving people the ability to save tax-free dollars to be used for healthcare expenses, HSA funds can be used for expenses that traditional insurance often doesn't cover. Things like dental care, over-the-counter healthcare purchases, and more can all be considered for HSA coverage.

Penalties for Using HSA Funds

As beneficial as an HSA may be, there are some penalties to be mindful of if you want to get the most out of your funds. While there typically aren't any penalties for using your funds for healthcare expenses, some providers allow you to withdraw funds against your HSA savings. If you do this, you may face penalties in the form of tax liabilities on the funds you take out.

How and When You Spend the Money

What matters in the calculation of penalties is how the funds are spent and when they are withdrawn. If you spend withdrawn funds on unqualified expenses, meaning expenses that are not related to medical care, you will be responsible for a penalty. Additionally, if you withdraw funds under the age of 65, you may face an additional penalty of 20%.

Finding the Right HSA Provider

While some tax rules regarding HSA funds and withdrawals are set by the Internal Revenue Service and therefore can't be changed, others may be at the discretion of the plan provider. The best HSA provider for your needs can vary depending on your current situation, both in terms of health and in terms of your savings goals.

While you may not have much leeway in determining your provider if you have an employer-sponsored HSA, a private HSA plan may provide more options. For many people, this is an easier way to find the best HSA provider as opposed to being given only a single option through a place of employment. For more information, you're encouraged to speak with a financial planner to discuss your unique situation.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years' experience in business finance. You can find his thoughts at HSA investment advice blog.